“It is always easier to believe than to deny. Our minds are naturally affirmative.” - John Burroughs (1837 - 1921)
Reflective Questions
Looking back to the start of the first quarter, the age-old market illustrated a classic debate for investors. At that time, one faced two extreme alternatives: whether to either sell all winners as a panic-like response or to buy on weakness to take advantage of cheaper prices. Some market wisdom reminds us that the reasonable answer resides somewhere in between those extremes. One approach is to buy quality stocks while selling vulnerable groups. Perhaps, that decision would’ve kept some satisfied the past few months. Of course, not many strategies outperformed ‘buy and hold’ since March 2009. Ironically, that was a period where most marketers concluded that long-term investment was officially “dead”. At this point, replicating last year’s upward pattern might seem a bit ambitious, especially at this junction.
New Quarter, Old Issues
Now, similar conditions are revisited here, a few months later, with shaky European credit status, growing worries of extended broad indexes, and a sharper rise in volatility from very low ranges. Perhaps, this is a repeat of early winter jitters, highlighted by uncertain fundamental and earnings outlook. All that said, risk appetite is increasing and assets held in money market dwindle, while aggressive areas, such as junk bonds, continue to see inflows. Also, those severely worried about credit conditions should not forget that Homebuilders index peaked in 2005 (well before market peak), banks topped on February 2007, and, for a while, credit crisis is being addressed and reassessed. In other words, these fears are not breaking news. In fact, overall, actual resolutions are unknown even with on-going deliberation, political posturing, and heavily documented financial crisis. Maybe these matters are not for investors to solve and even difficult for policymakers. Through these generational extremes, global investors seem to favor US markets for its liquid capital markets, highly demanded currency, and relative attractiveness, especially in fragile economic conditions.
Perspective
From US perspective, the S&P 500 is up 4.6% and the Dollar index has risen by 4.8% year-to-date. Therefore, both showcase a positive trend, despite the misconception of an inverse relationship between a country’s currency and its stock market. Similarly, US 10 Year Treasury has climbed higher, as well, along with Crude prices. On the other hand, the Gold frenzy has not lived up to the hype, as prices stayed in a range for the most part of the first quarter. In connecting the macro dots, this confirms investor’s willingness to take on further risk. Interestingly, this is one year after the market bottom, confidence restoration, and the entrance to a new cycle.
Through this thought process, one should examine the outlook for the rest of the year. For example, consumer and financials groups offered the highest risk/reward at the height of worries. Those gutsy bets have paid off for some on a selective basis. However, too much optimism, especially in analyst outlook, makes contrarian pundits a bit weary, as in, complacency might be a concern. Yet, this uptrend has faced various challenges. Sharp declines in the days ahead would not surprise many either. For example, some signs of vulnerability are visible in emerging markets and Commodity Index (RJ CRB), in which both failed to make new highs this year. Perhaps, those ideas were well served last decade. Finally, the profitability of short-term declines versus long-term rewards is the better decision making question.
Article Quotes:
“Some finance scholars and a few practitioners are moving away from a mechanical approach, derived from Newtonian physics, to a more organic one, based on biological observations. Attention is shifting, in recognition that economic systems, based on human interactions, can become more complex and unpredictable than planets or toasters. Financial theorists are turning to organic biological models, to help monitor the global economy and regulate key institutions that may be too big or interconnected to fail. Vivid metaphors serve to describe the phenomena.” (FundStradegy, March 22, 2010)
“The historically low level of inventories, relative to sales, suggests that companies need to restock. However, this figure alone can't provide a definitive signal, because there has been a secular decline in the inventory/sales ratio for the past 20 years, due to various technological and management innovations. It is the extraordinarily low inventory-sales ratio combined with other data that indicates to me that the strong inventory building process, already evident in the fourth-quarter GDP data for 2009, may sustain itself during the next few quarters, providing a major boost to employment. (Minyanville, March 26, 2010)
Levels:
S&P 500 [1166.59] reached new annual highs last week, yet again. For the past 8 trading days, index has held above 1160 majority of the time.
Crude [$80.00]closed exactly at a critical level of $80. There is heavy resistance around $83. That marks a significant, near-term hurdle for those seeking a breakout.
Gold [$1096.50] closed below its 50-day moving average of 1104, which matches the four month downtrend that began in early December 2009. Next important levels reside around 1045-1050 where investors will determine the faith of rising gold prices.
DXY– US Dollar Index [82.17], after completing a first wave of a multi-month recovery, is re-accelerating, especially since March 17, 2010. This is a confirmation of strength that’s emerging in the US Dollar.
US 10 Year Treasury Yields [3.84%] had a noticeable rise in the past 3 trading dates, lifting yields above 3.80%. This behavior attempts to retest recent highs of 3.90, reached on the last day of 2009. In addition, rates last hit the 4% mark in mid 2009.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 29, 2010
Monday, March 22, 2010
Market Outlook | March 22, 2010
“An optimist is the human personification of spring.” - Susan J. Bissonette
The official start of spring brings a glimpse of hope for sustainable recovery. For attentive financial followers, it’s hardly rosy some days when viewing updates on regulatory debates, European credit status, or worries of inflation. That said, a glance of the scoreboard tells us of stocks holding their gains with relatively low volatility and no alarming calls for the panic button, at least for the past week. In fact, optimism is visible as investors pulled $61.1 billion out of money markets, according to EPFR. That’s a symbol of optimism, which echoes a low interest rate policy by the Federal Reserve. Simply, the message is translated to support ongoing cycle recovery. In the weeks ahead, we’ll gain a better read on investor risk tolerance.
The inverse relationship between Gold and Dollar is closely monitored by pundits. Mainly, this is an accepted tool for gauging sentiment towards investor demands for risky assets. Importantly, it’s on the radar of observers, seeking hints across financial markets. The last few months witnessed a rise in US Dollar, which generally suggests a rotation towards safer instruments. However, both indicators are not currently pointing to a dramatic trend shift.
Another perspective shows outperformance of S&P 500 Index over Gold since March 2009. Possibly, this recovery cycle points to favorable returns in equities as commodities cool off from their previous decade run up. Similarly, the related groups of Steel and Oil Services led weekly declines. This corresponds with a sluggish, six-month performance by major commodities, which have few wondering on changing dynamics. Perhaps, it’s too premature to call tops on Gold and Crude prices, but it’s definitely worth watching.
Liquidity remains in high demand, especially in a period where most scramble to find preventative methods towards another crisis. Of course, it makes sense given key lessons learned in 2008. However, dwelling on past findings should not blur one’s drive to search potential opportunities. Some fundamental studies argue that stock multiples are too high and majority chart observers point to extended levels. However, financial markets have a tendency to surprise, and keeping an open mind might provide a prudent approach.
Article Quotes:
“I liken it to the cardiovascular system. In an economy, the central bank is the heart, money is the lifeblood, and financial markets are the arteries and capillaries that provide critical sustenance to the muscles that are the makers of goods and services and the creators of employment. A properly functioning cardiovascular system fosters healthy growth; if that system fails, the body breaks down and the muscles atrophy.” (Federal Reserve of Dallas, March 3, 2010)
“The first worry for China is that lending won't come down fast enough. Banks have made commitments to finance projects and cannot easily back out; besides, money may leak into bubbly real estate projects via channels that circumvent the banking system. Moreover, even if lending is reined in, the banks may do so inefficiently: China sets monetary policy by targeting the quantity of loans rather than their price, so powerful state-owned enterprises are liable to get capital while more productive private firms are starved of it.” (Washington Post, March 19, 2010)
Levels:
S&P 500 [1159.90] is closing near annual highs, confirming the established uptrend since March 2008. The index showcases strength and a re-acceleration that began in early February.
Crude [$80.68] had a retest of previous highs, which is a key hurdle for crude prices. Once again, crude prices are decelerating from $82 range, which suggests a weakening momentum.
Gold [$1105.50] maintains a sideway pattern. There is not much to surmise from chart patterns, except to conclude that investors appear to await impactful news material to cause a reaction.
DXY– US Dollar Index [80.22] is providing clues of reacceleration despite the multi-week neutral behavior. The follow through of last week’s strong finish will be highly anticipated.
US 10 Year Treasury Yields [3.68%] is staying above 3.60%, which serves as a key near-term level.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
The official start of spring brings a glimpse of hope for sustainable recovery. For attentive financial followers, it’s hardly rosy some days when viewing updates on regulatory debates, European credit status, or worries of inflation. That said, a glance of the scoreboard tells us of stocks holding their gains with relatively low volatility and no alarming calls for the panic button, at least for the past week. In fact, optimism is visible as investors pulled $61.1 billion out of money markets, according to EPFR. That’s a symbol of optimism, which echoes a low interest rate policy by the Federal Reserve. Simply, the message is translated to support ongoing cycle recovery. In the weeks ahead, we’ll gain a better read on investor risk tolerance.
The inverse relationship between Gold and Dollar is closely monitored by pundits. Mainly, this is an accepted tool for gauging sentiment towards investor demands for risky assets. Importantly, it’s on the radar of observers, seeking hints across financial markets. The last few months witnessed a rise in US Dollar, which generally suggests a rotation towards safer instruments. However, both indicators are not currently pointing to a dramatic trend shift.
Another perspective shows outperformance of S&P 500 Index over Gold since March 2009. Possibly, this recovery cycle points to favorable returns in equities as commodities cool off from their previous decade run up. Similarly, the related groups of Steel and Oil Services led weekly declines. This corresponds with a sluggish, six-month performance by major commodities, which have few wondering on changing dynamics. Perhaps, it’s too premature to call tops on Gold and Crude prices, but it’s definitely worth watching.
Liquidity remains in high demand, especially in a period where most scramble to find preventative methods towards another crisis. Of course, it makes sense given key lessons learned in 2008. However, dwelling on past findings should not blur one’s drive to search potential opportunities. Some fundamental studies argue that stock multiples are too high and majority chart observers point to extended levels. However, financial markets have a tendency to surprise, and keeping an open mind might provide a prudent approach.
Article Quotes:
“I liken it to the cardiovascular system. In an economy, the central bank is the heart, money is the lifeblood, and financial markets are the arteries and capillaries that provide critical sustenance to the muscles that are the makers of goods and services and the creators of employment. A properly functioning cardiovascular system fosters healthy growth; if that system fails, the body breaks down and the muscles atrophy.” (Federal Reserve of Dallas, March 3, 2010)
“The first worry for China is that lending won't come down fast enough. Banks have made commitments to finance projects and cannot easily back out; besides, money may leak into bubbly real estate projects via channels that circumvent the banking system. Moreover, even if lending is reined in, the banks may do so inefficiently: China sets monetary policy by targeting the quantity of loans rather than their price, so powerful state-owned enterprises are liable to get capital while more productive private firms are starved of it.” (Washington Post, March 19, 2010)
Levels:
S&P 500 [1159.90] is closing near annual highs, confirming the established uptrend since March 2008. The index showcases strength and a re-acceleration that began in early February.
Crude [$80.68] had a retest of previous highs, which is a key hurdle for crude prices. Once again, crude prices are decelerating from $82 range, which suggests a weakening momentum.
Gold [$1105.50] maintains a sideway pattern. There is not much to surmise from chart patterns, except to conclude that investors appear to await impactful news material to cause a reaction.
DXY– US Dollar Index [80.22] is providing clues of reacceleration despite the multi-week neutral behavior. The follow through of last week’s strong finish will be highly anticipated.
US 10 Year Treasury Yields [3.68%] is staying above 3.60%, which serves as a key near-term level.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Sunday, March 14, 2010
Market Outlook | March 15, 2010
“Any genuine philosophy leads to action and from action back again to wonder, to enduring fact of mystery. “ - Henry Miller (1891 - 1980)
Current Landscape
This has been another positive week that increases the difficulty of reaching a comfort level regarding recent market trends. As for the current mindset, even pessimists would have to accept the market strength with the S&P 500 breaking out near annual highs. As for sentiment, it feels like majority money managers would have liked to bet against this price appreciation, but the resilience is casting doubts in conviction levels of those maintaining a negative outlook. Also, sharp decline in volatility levels are puzzling, along with low volume levels, which questions the willingness of participants to add more risky assets. Basically, this run-up continues to reinforce itself of an ongoing positive momentum, despite fuzzy fundamental picture. From a cycle viewpoint, the March 2009 bottoming process should not be taking lightly, and last week marked a one year anniversary to this bullish run.
Anticipations and Clues
In the short-term, lows established on February 5, 2010, symbolized an early restoration of confidence. There is plenty of headline buzz over regulatory changes in derivative markets and financial regulations in US and Europe. However, data on interest rate policies and confirmation of an economic recovery are poised to cause sensitive responses. This week offers a meeting by the Federal Reserve, along with key economic results, which can lead to eventful reactions. At least, investors can gain better clues given key inflection points.
There are similarities when comparing current conditions with January 2010 sell-offs. For example, the S&P 500 Index was 3.41% above its 50-day moving average when the market peaked on January 19, 2010. Heading into Monday, currently S&P 500 is 3.37% higher than its 50-day moving average. This points to a similar set-up when applying simple math. Combining investor psychology along with policy approaches begins to increase odds for spring surprises.
Changing Dynamics
Asset managers are trying to gain a better gauge on risk and other financial theories post 2008. We’re in a period of the skepticism of investors as managers scramble to understand risk assessment while adjusting to a changing landscape. Investor comfort level for committing risky capital is unclear and partially explained by synchronized movement across financial markets. In other words, strong correlation among asset classes presents a challenge in mapping out a long-term plan. Basically, interest rates, stocks, and commodities have mostly risen and declined in tandem since 2008. Perhaps, one key mystery is the possibility of dispersion, leading to less synchronized patter. Nonetheless, stock picking and theme based investing generally provide opportunities. However, finding those selective ideas without a clear macro picture presents another layer of difficulty. Therefore, patience is required more than usual.
Article Quotes:
"The inventory-sales ratio of the business sector was down one notch to 1.25 in January; the record low for this ratio is 1.24 set in 2005. As the economy gathers momentum, inventories are projected to make a sizable contribution to real GDP, which could be in the first-half of 2010 or later in the year. The timing is unclear, but it is nearly certain that an inventory accumulation led spike in real GDP is in store for 2010." (Northern Trust, March 12, 2010)
"The percentage of stocks in the S&P 500 currently trades above their 50-day moving averages stands at 78%. As shown in the chart below, this is getting up to the top end of the range the indicator has seen during the bull market. It still has a little bit farther to go before it reaches extreme overbought territory….On a sector basis, Financials currently has the highest reading at 94%. This level is at the top of its range over the last year, and it's the most overbought of any sector.” ( Bespoke, March 11, 2010)
Levels:
S&P 500 [1149.99] is climbing back to January 2010 highs while holding above 1140. It appears due for a pause, but momentum is positive.
Crude [$81.24] is struggling to hold above $82. A glance back showcases that those current levels were previously critical turning points in October and January.
Gold [$1106.25] is trading in a tight range between 1080 and 1120, which confirms the neutrality of investor reaction.
DXY– US Dollar Index [79.83] is pausing, following a multi-week upside trend. Index is slightly below a key technical range of 80.
US 10 Year Treasury Yields [3.70%] has had no significant directional changes since the start of the year. The last 6 trading days witnessed rise in rates from 3.58%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Current Landscape
This has been another positive week that increases the difficulty of reaching a comfort level regarding recent market trends. As for the current mindset, even pessimists would have to accept the market strength with the S&P 500 breaking out near annual highs. As for sentiment, it feels like majority money managers would have liked to bet against this price appreciation, but the resilience is casting doubts in conviction levels of those maintaining a negative outlook. Also, sharp decline in volatility levels are puzzling, along with low volume levels, which questions the willingness of participants to add more risky assets. Basically, this run-up continues to reinforce itself of an ongoing positive momentum, despite fuzzy fundamental picture. From a cycle viewpoint, the March 2009 bottoming process should not be taking lightly, and last week marked a one year anniversary to this bullish run.
Anticipations and Clues
In the short-term, lows established on February 5, 2010, symbolized an early restoration of confidence. There is plenty of headline buzz over regulatory changes in derivative markets and financial regulations in US and Europe. However, data on interest rate policies and confirmation of an economic recovery are poised to cause sensitive responses. This week offers a meeting by the Federal Reserve, along with key economic results, which can lead to eventful reactions. At least, investors can gain better clues given key inflection points.
There are similarities when comparing current conditions with January 2010 sell-offs. For example, the S&P 500 Index was 3.41% above its 50-day moving average when the market peaked on January 19, 2010. Heading into Monday, currently S&P 500 is 3.37% higher than its 50-day moving average. This points to a similar set-up when applying simple math. Combining investor psychology along with policy approaches begins to increase odds for spring surprises.
Changing Dynamics
Asset managers are trying to gain a better gauge on risk and other financial theories post 2008. We’re in a period of the skepticism of investors as managers scramble to understand risk assessment while adjusting to a changing landscape. Investor comfort level for committing risky capital is unclear and partially explained by synchronized movement across financial markets. In other words, strong correlation among asset classes presents a challenge in mapping out a long-term plan. Basically, interest rates, stocks, and commodities have mostly risen and declined in tandem since 2008. Perhaps, one key mystery is the possibility of dispersion, leading to less synchronized patter. Nonetheless, stock picking and theme based investing generally provide opportunities. However, finding those selective ideas without a clear macro picture presents another layer of difficulty. Therefore, patience is required more than usual.
Article Quotes:
"The inventory-sales ratio of the business sector was down one notch to 1.25 in January; the record low for this ratio is 1.24 set in 2005. As the economy gathers momentum, inventories are projected to make a sizable contribution to real GDP, which could be in the first-half of 2010 or later in the year. The timing is unclear, but it is nearly certain that an inventory accumulation led spike in real GDP is in store for 2010." (Northern Trust, March 12, 2010)
"The percentage of stocks in the S&P 500 currently trades above their 50-day moving averages stands at 78%. As shown in the chart below, this is getting up to the top end of the range the indicator has seen during the bull market. It still has a little bit farther to go before it reaches extreme overbought territory….On a sector basis, Financials currently has the highest reading at 94%. This level is at the top of its range over the last year, and it's the most overbought of any sector.” ( Bespoke, March 11, 2010)
Levels:
S&P 500 [1149.99] is climbing back to January 2010 highs while holding above 1140. It appears due for a pause, but momentum is positive.
Crude [$81.24] is struggling to hold above $82. A glance back showcases that those current levels were previously critical turning points in October and January.
Gold [$1106.25] is trading in a tight range between 1080 and 1120, which confirms the neutrality of investor reaction.
DXY– US Dollar Index [79.83] is pausing, following a multi-week upside trend. Index is slightly below a key technical range of 80.
US 10 Year Treasury Yields [3.70%] has had no significant directional changes since the start of the year. The last 6 trading days witnessed rise in rates from 3.58%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 08, 2010
Market Outlook | March 8, 2010
“There is no security on this earth; there is only opportunity.” General Douglas MacArthur (1880 - 1964)
Slowly Marching
The last three weeks have tested the patience of both optimists and skeptics. Simply, the current environment appears dull, given a much anticipated inflection point in stocks, commodities, and interest rates. For example, S&P 500 Index, Crude, and US 10 Year Yields all bottomed on February 5, 2010. These are all interconnected and highly watched indeed. Thus far, there are no major surprises in economic data, headline interpretations, and technical signals. However, this sideways pattern should not be alarming after a weak January and strong February. That said, this neutral behavior may drive managers and investors to seek concentrated and narrow based ideas. At the same time, interest rates levels continue to encourage more risk taking in global assets. Meanwhile, risk appetite is moderately increasing as hinted by weekly inflow in junk bonds and recent issuance of corporate bonds.
Short-Term View
Most broad indexes have been up 5-8 days in a row, as a continuation of market strength since March 2009 lows. Some near-term indicators were suggesting that financial markets were extended even by mid-week. Friday’s action confirmed overall buyer strength. Importantly, resilience of the Nasdaq Index showcases strength in technology and healthcare based themes. Perhaps, this is another hint of a leadership groups based on innovation that present sustainability. Similarly, Small Cap Index was nearly up 6 % for the week. From a psychological view, the S&P 500 is positive so far this year, which can entice some optimism. An explosive upside bias remains in place since the lows of March 6, 2009. However, the looming short-term pullbacks ignite further tests of buyer conviction. Several periods of inevitable sell-offs have taught us not to lose track of attractive opportunities based on minor macro worries.
Tricky Sentiment
The resilience in global stock prices and steady recoveries would imply improving investor sentiment. Positive economic conditions and rising interest rates were expected by many pundits at the start of the year. On the other hand, the fear of asset bubbles is a reoccurring theme among those arguing for a sharp sell-off. Clearly, the credit crisis in Europe and explosive real estate market in China are on the radar of worrisome issues. The surprise element rests on the decisions and messages of policymakers that can influence the mindset of participants. Investors might choose to shorten the overall holding period in big picture ideas. In upcoming weeks, it enables one to examine a handful of specific ideas that are worth accumulating on weakness.
Article Quotes:
"Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank is 'being made a scapegoat' to satisfy anger over bailouts as Congress seeks to limit its consumer-protection and bank-supervision powers. 'People are mad at us,' Lacker said... 'I can understand the ire after what happened in 2008. It was so unexpected, and it seemed to overstep boundaries that everyone thought we were going to obey.' Lacker said he wouldn't 'second guess' moves by Federal Reserve Chairman Ben S. Bernanke to backstop non-bank financial institutions... He said proposals to curtail the Fed's supervision authority would weaken its ability to lend to banks." (Bloomberg, March 1, 2010)
“Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion ‘floating city,’ a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.” (New York Times, March 4th 2010)
Levels:
S&P 500 [1138.70] is showcasing a steady recovery while maintaining its uptrend. Few points removed from annual highs of 1150.
Crude [$81.50] recent recovery mirrors stocks as the commodity bottomed on February 5th. It is nearing key ranges between $82.00 and $83.95.
Gold [$1135.00] is establishing a 3 month pause within a defined range 1050-1150. Catalyst needed for a trend shift.
DXY– US Dollar Index [80.42] has had prices sitting slightly above 80, which remain above its 50- and 200-day averages.
US 10 Year Treasury Yields [3.68%] is mostly sideways in the past few weeks. Rates are holding steady at about 3.60%, which has been consistent so far this year.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Slowly Marching
The last three weeks have tested the patience of both optimists and skeptics. Simply, the current environment appears dull, given a much anticipated inflection point in stocks, commodities, and interest rates. For example, S&P 500 Index, Crude, and US 10 Year Yields all bottomed on February 5, 2010. These are all interconnected and highly watched indeed. Thus far, there are no major surprises in economic data, headline interpretations, and technical signals. However, this sideways pattern should not be alarming after a weak January and strong February. That said, this neutral behavior may drive managers and investors to seek concentrated and narrow based ideas. At the same time, interest rates levels continue to encourage more risk taking in global assets. Meanwhile, risk appetite is moderately increasing as hinted by weekly inflow in junk bonds and recent issuance of corporate bonds.
Short-Term View
Most broad indexes have been up 5-8 days in a row, as a continuation of market strength since March 2009 lows. Some near-term indicators were suggesting that financial markets were extended even by mid-week. Friday’s action confirmed overall buyer strength. Importantly, resilience of the Nasdaq Index showcases strength in technology and healthcare based themes. Perhaps, this is another hint of a leadership groups based on innovation that present sustainability. Similarly, Small Cap Index was nearly up 6 % for the week. From a psychological view, the S&P 500 is positive so far this year, which can entice some optimism. An explosive upside bias remains in place since the lows of March 6, 2009. However, the looming short-term pullbacks ignite further tests of buyer conviction. Several periods of inevitable sell-offs have taught us not to lose track of attractive opportunities based on minor macro worries.
Tricky Sentiment
The resilience in global stock prices and steady recoveries would imply improving investor sentiment. Positive economic conditions and rising interest rates were expected by many pundits at the start of the year. On the other hand, the fear of asset bubbles is a reoccurring theme among those arguing for a sharp sell-off. Clearly, the credit crisis in Europe and explosive real estate market in China are on the radar of worrisome issues. The surprise element rests on the decisions and messages of policymakers that can influence the mindset of participants. Investors might choose to shorten the overall holding period in big picture ideas. In upcoming weeks, it enables one to examine a handful of specific ideas that are worth accumulating on weakness.
Article Quotes:
"Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank is 'being made a scapegoat' to satisfy anger over bailouts as Congress seeks to limit its consumer-protection and bank-supervision powers. 'People are mad at us,' Lacker said... 'I can understand the ire after what happened in 2008. It was so unexpected, and it seemed to overstep boundaries that everyone thought we were going to obey.' Lacker said he wouldn't 'second guess' moves by Federal Reserve Chairman Ben S. Bernanke to backstop non-bank financial institutions... He said proposals to curtail the Fed's supervision authority would weaken its ability to lend to banks." (Bloomberg, March 1, 2010)
“Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion ‘floating city,’ a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.” (New York Times, March 4th 2010)
Levels:
S&P 500 [1138.70] is showcasing a steady recovery while maintaining its uptrend. Few points removed from annual highs of 1150.
Crude [$81.50] recent recovery mirrors stocks as the commodity bottomed on February 5th. It is nearing key ranges between $82.00 and $83.95.
Gold [$1135.00] is establishing a 3 month pause within a defined range 1050-1150. Catalyst needed for a trend shift.
DXY– US Dollar Index [80.42] has had prices sitting slightly above 80, which remain above its 50- and 200-day averages.
US 10 Year Treasury Yields [3.68%] is mostly sideways in the past few weeks. Rates are holding steady at about 3.60%, which has been consistent so far this year.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 01, 2010
Market Outlook | March 1, 2010
“Many people despise wealth, but few know how to give it away.” Francois de La Rochefoucauld (1613 - 1680)
Lack of Rhythm
Coming into the year, there were growing expectations of a recovering economy, but the pace of improving conditions is being questioned. A strong February stock performance showcased a solid recovery, which appears to make up January’s losses. This is visible in the neutral results of broad indexes in which the S&P is down 1% year-to-date. This is yet another view, describing the lack of major movements while setting the stage for a suspenseful spring. Clearly, the consequences of European credit concerns dominate headlines by triggering fear-like responses, especially for banks with risky asset exposure.
US credit crisis of mid 2007 serves as the roots of recent trouble in Europe. Therefore, one should not be surprised to see discussion and implementation of reforms in financial services. For example, new short-selling rules were enforced last week. Now, this will take time to materialize as facilitators implement and adjust for these changes. On the other hand, several pundits keep featuring worrisome big picture issues, which make long-term investors wary to commit capital and exercise patience.
Moreover, technical indicators are not showcasing opportunistic extremes, which suggest increasing market sensitively in response to event reactions. In short, identifying the natural market rhythm is less evident at this junction. Now, money managers might have to understand headline interpretations while attempting to guess sustainable results. This is a challenge indeed. For traders, this means to expect plenty of news material related to credit and sovereign crisis. Knowing how to respond will be vital.
Evaluating New Trends
Only few months ago, the Dollar began to recover from extreme lows. Similarly, within the same timeframe, Gold prices peaked along with global equities. This pause is not only attributed to structural concerns of financial systems but a bubble-like behavior in emerging markets. As a result, the multi-week correction is highlighted by risk aversion and sell-off in the Euro. The nature of these pullbacks is broad based and finding distinct ideas on a relative basis, stock specific companies with less currency, and commodity exposure is worth examining. That said, investor willingness to own shares for an extended period remains part of the ongoing puzzle.
On the bright side, Volatility Index (VIX) has calmed down despite sharp turbulences in 2010. The Volatility Index is slightly below where we started the year. Of course, this is temporary, and shift in sentiment is a wildcard that’s unpredictable. However, interest rate sensitive themes and material based groups remain vulnerable from the current sell-off. In turn, this favors innovative companies as investor demand shifts away from previous leaders, such as resource and some emerging markets. If this holds, then money managers will begin to wonder a potential inflow into US currency and capital markets.
Article Quotes:
“The existence of this long-term trend makes recent developments all the more interesting. Since the recent lows in early February, equity markets around the world have all recovered to some degree. However, unlike prior rebounds, emerging markets have been underperforming. In fact, while the major US averages (S&P 500, DJIA and Nasdaq) closed above their 50-day averages on Friday, all four BRIC countries (Brazil, Russia, India, and China) had yet to achieve that milestone. Whether or not this trend fizzles out or is an early warning sign for the global economy is debatable, but in either case, emerging market investors would be wise to be on alert.” (Bespoke February 22, 2010)
“Everywhere you look, the quantity of information in the world is soaring. According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes. Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analyzing it, to spot patterns and extract useful information, is harder still. Even so, the data deluge is already starting to transform business, government, science, and everyday life). It has great potential for good—as long as consumers, companies and governments make the right choices about when to restrict the flow of data and when to encourage it.” (The Economist, February 25th 2010)
Levels:
S&P 500 [1104.49] is recovering from February 5th lows of 1044 and beginning to stall at current range.
Crude [$79.66] is facing heavy resistance at $80. In upcoming weeks, investor will examine the willingness of buyers. Remains highly correlated to equity markets in the recent run-up.
Gold [$1108.25] has yet to establish a defined trend following a December 2009 peak. It’s now trading in-line with its 50 day moving average of $1108.
DXY– US Dollar Index [80.36] is in a three month uptrend and nearing an inflection point yet again at 80. It’s poised for minor pullbacks, but the recovery appears intact.
US 10 Year Treasury Yields [3.61%], which is further confirmation that current trend favors rates between 3.60% and 3.80%. The last 50 days of trading showcase an average of 3.70%, which is a midpoint level of a multi-month trend.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Lack of Rhythm
Coming into the year, there were growing expectations of a recovering economy, but the pace of improving conditions is being questioned. A strong February stock performance showcased a solid recovery, which appears to make up January’s losses. This is visible in the neutral results of broad indexes in which the S&P is down 1% year-to-date. This is yet another view, describing the lack of major movements while setting the stage for a suspenseful spring. Clearly, the consequences of European credit concerns dominate headlines by triggering fear-like responses, especially for banks with risky asset exposure.
US credit crisis of mid 2007 serves as the roots of recent trouble in Europe. Therefore, one should not be surprised to see discussion and implementation of reforms in financial services. For example, new short-selling rules were enforced last week. Now, this will take time to materialize as facilitators implement and adjust for these changes. On the other hand, several pundits keep featuring worrisome big picture issues, which make long-term investors wary to commit capital and exercise patience.
Moreover, technical indicators are not showcasing opportunistic extremes, which suggest increasing market sensitively in response to event reactions. In short, identifying the natural market rhythm is less evident at this junction. Now, money managers might have to understand headline interpretations while attempting to guess sustainable results. This is a challenge indeed. For traders, this means to expect plenty of news material related to credit and sovereign crisis. Knowing how to respond will be vital.
Evaluating New Trends
Only few months ago, the Dollar began to recover from extreme lows. Similarly, within the same timeframe, Gold prices peaked along with global equities. This pause is not only attributed to structural concerns of financial systems but a bubble-like behavior in emerging markets. As a result, the multi-week correction is highlighted by risk aversion and sell-off in the Euro. The nature of these pullbacks is broad based and finding distinct ideas on a relative basis, stock specific companies with less currency, and commodity exposure is worth examining. That said, investor willingness to own shares for an extended period remains part of the ongoing puzzle.
On the bright side, Volatility Index (VIX) has calmed down despite sharp turbulences in 2010. The Volatility Index is slightly below where we started the year. Of course, this is temporary, and shift in sentiment is a wildcard that’s unpredictable. However, interest rate sensitive themes and material based groups remain vulnerable from the current sell-off. In turn, this favors innovative companies as investor demand shifts away from previous leaders, such as resource and some emerging markets. If this holds, then money managers will begin to wonder a potential inflow into US currency and capital markets.
Article Quotes:
“The existence of this long-term trend makes recent developments all the more interesting. Since the recent lows in early February, equity markets around the world have all recovered to some degree. However, unlike prior rebounds, emerging markets have been underperforming. In fact, while the major US averages (S&P 500, DJIA and Nasdaq) closed above their 50-day averages on Friday, all four BRIC countries (Brazil, Russia, India, and China) had yet to achieve that milestone. Whether or not this trend fizzles out or is an early warning sign for the global economy is debatable, but in either case, emerging market investors would be wise to be on alert.” (Bespoke February 22, 2010)
“Everywhere you look, the quantity of information in the world is soaring. According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes. Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analyzing it, to spot patterns and extract useful information, is harder still. Even so, the data deluge is already starting to transform business, government, science, and everyday life). It has great potential for good—as long as consumers, companies and governments make the right choices about when to restrict the flow of data and when to encourage it.” (The Economist, February 25th 2010)
Levels:
S&P 500 [1104.49] is recovering from February 5th lows of 1044 and beginning to stall at current range.
Crude [$79.66] is facing heavy resistance at $80. In upcoming weeks, investor will examine the willingness of buyers. Remains highly correlated to equity markets in the recent run-up.
Gold [$1108.25] has yet to establish a defined trend following a December 2009 peak. It’s now trading in-line with its 50 day moving average of $1108.
DXY– US Dollar Index [80.36] is in a three month uptrend and nearing an inflection point yet again at 80. It’s poised for minor pullbacks, but the recovery appears intact.
US 10 Year Treasury Yields [3.61%], which is further confirmation that current trend favors rates between 3.60% and 3.80%. The last 50 days of trading showcase an average of 3.70%, which is a midpoint level of a multi-month trend.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 22, 2010
Market Outlook | February 22, 2010
“Do not anticipate trouble or worry about what may never happen. Keep in the sunlight.” Benjamin Franklin (1706 - 1790)
Stabilizing
A sluggish start to 2010 might explain profit taking and early jitters but not necessarily a downtrend. The S&P 500 has yet to correct 10%, while economic numbers are set to improve in this period of stabilization. Last week presented a holiday shortened week as well as option expiration. The S&P 500 is trading near its midpoint range, between the highs of October 2007 (1576) and the lows of March 2008 (666). To be exact, the midpoint level is 1121; that’s just 12 points removed from S&P 500 Index as of Friday’s close. In other words, a 42% rise from current levels would be required to get back to last decade’s highs. This simple math provides a perspective that markets are trading closer to neutral and not at extremes. This sentiment matches the decisions by policymakers and anticipated earnings improvement. Interestingly, the last 10 days have witnessed a nearly 9% rise in the Russell Small Cap Index. This sharp upside is visible in commodity related indexes and stocks as buyer bias followed up a weak January.
Sideway patterns may continue in stocks and, in turn, force investors to actively monitor short-term patterns. At least in US, finding long-term investments with sustainable growth require some patience. In addition, more precision is required in selecting the right companies. Now, the ability to pick quality stocks, while navigating through a fuzzy broad market outlook, is the challenge ahead for 10 months. Investors eagerly await data points to determine the next leadership groups. However, only seeking for a defined uptrend might not be sufficient to outpace competing managers. Plus, investors have witnessed rollercoaster’s in the past 3 years, which explains growing skepticism, along with requests for higher transparency. This can further delay the recovery process.
In Upcoming Days
The hike in discount rates by the Federal Reserve should not be a surprise as participants look to digest the awkward timing of the announcement. Perhaps, the move by the central banks suggests that policies implemented for crisis management of the previous years are moving back to normal levels. Others anticipate these hikes will trigger the start of a rising rate policy. In both cases, it’s too early to assume and conclude. In upcoming days, interpretation of this announcement should play out in stocks and commodities. Meanwhile, Europe attempts to resolve various debt concerns, and China hopes to cool the ongoing bubble. Basically, the results of the credit crisis are lingering and reforms will continue to be discussed. Therefore, participants have to track pending reforms, while not losing sight of emerging ideas in a new cycle.
Article Quotes:
“Some Chinese economists worry out loud that China’s massive stimulus-spending might have bought the country only a temporary reprieve. Bubbles, they fret, are forming in property markets, inflationary pressure is building up, and reforms needed to promote sustained growth (including measures to promote urbanization) are not being carried out fast enough. Occasionally, even the government’s worst nightmare is mooted as a possibility: stagflation. A combination of fast-rising prices and low growth might indeed be enough to send protesters on to the streets.” (The Economist, February 18, 2010)
“True, monetary union came before political union. But it did not come with a promise that there would never be such a union. Quite to the contrary: the founding fathers wanted the euro primarily as a step towards political union, knowing little of the overriding technical arguments in its favour. Those who argued against it then, on the grounds that “there can that there could be no monetary union without political union”, are precisely those who should welcome political union now that it finally knocks at the door claiming its rights.” (Financial Times, February 18, 2010)
Levels:
S&P 500 [1109.17] is facing early resistance as the index closed near its 50-day average of 1109. Most likely index continues to trade in the range of 1080-1120.
Crude [$79.81] had a 15% rally since February 5th demonstrates the sharpness of this recent recovery.
Gold [1112.75] continues its multi-week decline after peaking in early December 2009. Recent pattern points to a settling process taking place.
DXY– US Dollar Index [80.93] had another strong week, making new annual highs. The Dollar is reverting back to levels seen in early and mid 2009 levels.
US 10 Year Treasury Yields [3.77%] is stabilizing between 3.60% and 3.80%. Observers await the possible retest of 3.90 at the end of last year.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Stabilizing
A sluggish start to 2010 might explain profit taking and early jitters but not necessarily a downtrend. The S&P 500 has yet to correct 10%, while economic numbers are set to improve in this period of stabilization. Last week presented a holiday shortened week as well as option expiration. The S&P 500 is trading near its midpoint range, between the highs of October 2007 (1576) and the lows of March 2008 (666). To be exact, the midpoint level is 1121; that’s just 12 points removed from S&P 500 Index as of Friday’s close. In other words, a 42% rise from current levels would be required to get back to last decade’s highs. This simple math provides a perspective that markets are trading closer to neutral and not at extremes. This sentiment matches the decisions by policymakers and anticipated earnings improvement. Interestingly, the last 10 days have witnessed a nearly 9% rise in the Russell Small Cap Index. This sharp upside is visible in commodity related indexes and stocks as buyer bias followed up a weak January.
Sideway patterns may continue in stocks and, in turn, force investors to actively monitor short-term patterns. At least in US, finding long-term investments with sustainable growth require some patience. In addition, more precision is required in selecting the right companies. Now, the ability to pick quality stocks, while navigating through a fuzzy broad market outlook, is the challenge ahead for 10 months. Investors eagerly await data points to determine the next leadership groups. However, only seeking for a defined uptrend might not be sufficient to outpace competing managers. Plus, investors have witnessed rollercoaster’s in the past 3 years, which explains growing skepticism, along with requests for higher transparency. This can further delay the recovery process.
In Upcoming Days
The hike in discount rates by the Federal Reserve should not be a surprise as participants look to digest the awkward timing of the announcement. Perhaps, the move by the central banks suggests that policies implemented for crisis management of the previous years are moving back to normal levels. Others anticipate these hikes will trigger the start of a rising rate policy. In both cases, it’s too early to assume and conclude. In upcoming days, interpretation of this announcement should play out in stocks and commodities. Meanwhile, Europe attempts to resolve various debt concerns, and China hopes to cool the ongoing bubble. Basically, the results of the credit crisis are lingering and reforms will continue to be discussed. Therefore, participants have to track pending reforms, while not losing sight of emerging ideas in a new cycle.
Article Quotes:
“Some Chinese economists worry out loud that China’s massive stimulus-spending might have bought the country only a temporary reprieve. Bubbles, they fret, are forming in property markets, inflationary pressure is building up, and reforms needed to promote sustained growth (including measures to promote urbanization) are not being carried out fast enough. Occasionally, even the government’s worst nightmare is mooted as a possibility: stagflation. A combination of fast-rising prices and low growth might indeed be enough to send protesters on to the streets.” (The Economist, February 18, 2010)
“True, monetary union came before political union. But it did not come with a promise that there would never be such a union. Quite to the contrary: the founding fathers wanted the euro primarily as a step towards political union, knowing little of the overriding technical arguments in its favour. Those who argued against it then, on the grounds that “there can that there could be no monetary union without political union”, are precisely those who should welcome political union now that it finally knocks at the door claiming its rights.” (Financial Times, February 18, 2010)
Levels:
S&P 500 [1109.17] is facing early resistance as the index closed near its 50-day average of 1109. Most likely index continues to trade in the range of 1080-1120.
Crude [$79.81] had a 15% rally since February 5th demonstrates the sharpness of this recent recovery.
Gold [1112.75] continues its multi-week decline after peaking in early December 2009. Recent pattern points to a settling process taking place.
DXY– US Dollar Index [80.93] had another strong week, making new annual highs. The Dollar is reverting back to levels seen in early and mid 2009 levels.
US 10 Year Treasury Yields [3.77%] is stabilizing between 3.60% and 3.80%. Observers await the possible retest of 3.90 at the end of last year.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Tuesday, February 16, 2010
Market Outlook | February 16, 2010
“When people have lost their money, they strike out unthinkingly, like a wounded snake, at whoever is most prominent in the line of vision.” - Theodore Roosevelt (US President 1901-1909)
Market Feel:
Investors await sensitive changes in regulatory and interest rate policies. These issues are highly discussed, hard to assess, and clearly too difficult to predict. At this point, a recovering business environment appears to be in the best interest of all parties involved, especially with upcoming US elections this fall. Establishing new laws in market related matters are challenging the minds and fortitude of policymakers. Meanwhile, financial markets are in some neural state of confusion. At least, a much needed breather is taking place. Yet growing anxiousness is highlighted by credit concerns in Europe and policymakers bubble-like behaviors in China. That said, these worries in Europe are not overly surprising but are mostly an extension of the credit crisis that was triggered in mid-2007 and new occurrence.
Liquid and Relatively Attractive:
Depreciation of the US Dollar in the past few years should not be confused with the currency’s global prominence. The US Dollar remains liquid in international trades and pegged to the currencies of 89 countries. Importantly, the Dollar did not lose significant market share to the Euro, as commonly stated in previous years. In fact, foreign reserves held by foreign governments exceeded $7 trillion in 2008, and, overall, reserve portfolios have remained stable since 2000 (Federal Reserve of New York, January 2010).
Digesting the points above may partially explain a major theme of a stronger Dollar so far this year. This appreciation can be mostly attributed to risk aversion, or a simple recovery, from deeply oversold levels. Nonetheless, investors, who placed their bets on Dollar recovery, would’ve enjoyed early fruitful returns. In terms of liquidity, just like its currency, the US offers a relatively advanced, well tested, and attractive capital markets. Again, it’s important not to confuse, the lingering economic and deficit concerns along with the stability of financial system. On that note, with commodities declining, euro-zone weakening, and emerging markets cooling, one has to wonder about the opportunities presented from these results. Perhaps, these issues can make US stocks and Dollar attractive from a longer-term perspective. Since November 25, 2009, DXY (US Dollar Index) is up over 8%, as Gold prices dropped nearly 11% in the same timeframe. This is early to call: however, a shift might take place in overall sentiment and a behavior change from the previous decade.
Short-week Ahead:
Optimists will look for entry points here, given the oversold conditions. In other words, odds for a near-term turnaround are slightly favorable. Industry groups, such as solar panel, biotech, and communications are poised for market leadership. This presents relative attractiveness to “idea driven” sectors, as financials attempt to reform business conducts and profit taking in commodities. Finally, if global markets stop moving in tandem, specific sections will become instrumental. At this stage of the cycle, finding distinguished companies with growth potential is not easily discoverable, but the higher reward potential can entice the interest of participants.
Article Quotes:
“With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.” In 1837, the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since.” (Business Insider, February 10, 2010)
“Since the second world war, businesses have increasingly used retained earnings, third-party insurance and pension funds to promise future benefits to employees. To fund these, large pools of financial assets have accumulated in collective savings institutions run by self-selected investment professionals with little experience of private business and non-traded assets. This paved the way for private equity managers, who plunged into debt up to the hilt and earned egregious personal rewards. Their model relies on short-term financial engineering and ‘exit strategies’, not sustainable profits.” (Financial Times, February 14, 2010)
Levels:
S&P 500 [1075.51] remains strong, especially around 1060 where buyers showed interest in the past few days.
Crude [$74.13] prices are trading between its 50- and 200-day moving averages. Next key level is around levels last seen in mid-December.
Gold [1082] is attempting to bottom, as recovery attempts will be tested. Near-term traders are closely watching if prices stay above 1080.
DXY– US Dollar Index [79.98] is approaching new multi-month highs and hinting a turnaround. Investors eagerly await confirmation on recent moves and the sustainability of a recovering Dollar.
US 10 Year Treasury Yields [3.69%] is narrowly hovering between 3.60% and 3.70% in recent weeks.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Market Feel:
Investors await sensitive changes in regulatory and interest rate policies. These issues are highly discussed, hard to assess, and clearly too difficult to predict. At this point, a recovering business environment appears to be in the best interest of all parties involved, especially with upcoming US elections this fall. Establishing new laws in market related matters are challenging the minds and fortitude of policymakers. Meanwhile, financial markets are in some neural state of confusion. At least, a much needed breather is taking place. Yet growing anxiousness is highlighted by credit concerns in Europe and policymakers bubble-like behaviors in China. That said, these worries in Europe are not overly surprising but are mostly an extension of the credit crisis that was triggered in mid-2007 and new occurrence.
Liquid and Relatively Attractive:
Depreciation of the US Dollar in the past few years should not be confused with the currency’s global prominence. The US Dollar remains liquid in international trades and pegged to the currencies of 89 countries. Importantly, the Dollar did not lose significant market share to the Euro, as commonly stated in previous years. In fact, foreign reserves held by foreign governments exceeded $7 trillion in 2008, and, overall, reserve portfolios have remained stable since 2000 (Federal Reserve of New York, January 2010).
Digesting the points above may partially explain a major theme of a stronger Dollar so far this year. This appreciation can be mostly attributed to risk aversion, or a simple recovery, from deeply oversold levels. Nonetheless, investors, who placed their bets on Dollar recovery, would’ve enjoyed early fruitful returns. In terms of liquidity, just like its currency, the US offers a relatively advanced, well tested, and attractive capital markets. Again, it’s important not to confuse, the lingering economic and deficit concerns along with the stability of financial system. On that note, with commodities declining, euro-zone weakening, and emerging markets cooling, one has to wonder about the opportunities presented from these results. Perhaps, these issues can make US stocks and Dollar attractive from a longer-term perspective. Since November 25, 2009, DXY (US Dollar Index) is up over 8%, as Gold prices dropped nearly 11% in the same timeframe. This is early to call: however, a shift might take place in overall sentiment and a behavior change from the previous decade.
Short-week Ahead:
Optimists will look for entry points here, given the oversold conditions. In other words, odds for a near-term turnaround are slightly favorable. Industry groups, such as solar panel, biotech, and communications are poised for market leadership. This presents relative attractiveness to “idea driven” sectors, as financials attempt to reform business conducts and profit taking in commodities. Finally, if global markets stop moving in tandem, specific sections will become instrumental. At this stage of the cycle, finding distinguished companies with growth potential is not easily discoverable, but the higher reward potential can entice the interest of participants.
Article Quotes:
“With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.” In 1837, the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since.” (Business Insider, February 10, 2010)
“Since the second world war, businesses have increasingly used retained earnings, third-party insurance and pension funds to promise future benefits to employees. To fund these, large pools of financial assets have accumulated in collective savings institutions run by self-selected investment professionals with little experience of private business and non-traded assets. This paved the way for private equity managers, who plunged into debt up to the hilt and earned egregious personal rewards. Their model relies on short-term financial engineering and ‘exit strategies’, not sustainable profits.” (Financial Times, February 14, 2010)
Levels:
S&P 500 [1075.51] remains strong, especially around 1060 where buyers showed interest in the past few days.
Crude [$74.13] prices are trading between its 50- and 200-day moving averages. Next key level is around levels last seen in mid-December.
Gold [1082] is attempting to bottom, as recovery attempts will be tested. Near-term traders are closely watching if prices stay above 1080.
DXY– US Dollar Index [79.98] is approaching new multi-month highs and hinting a turnaround. Investors eagerly await confirmation on recent moves and the sustainability of a recovering Dollar.
US 10 Year Treasury Yields [3.69%] is narrowly hovering between 3.60% and 3.70% in recent weeks.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 08, 2010
Market Outlook | February 8, 2010
“You cannot depend on your eyes when your imagination is out of focus.” - Mark Twain (1835 - 1910)
Markets Sway
It is hard to deny the eventful and tricky week that witnessed significant swings. Perhaps, the VIX (volatility index) chart paints a better picture of this trendless action, causing mild unrest. Last week started on a positive note, followed by sharp sell-offs in-between, and ended with a late Friday recovery. That mostly sums up a lively five days of trading at the start of February.
Through this maze, the S&P 500 held above 1035 which marks a 10% correction since January highs. Of course, one should not assume that 10% is a magic number, yet it serves as a gauge to distinguish an inevitable short-term correction from a long-term breakdown. Labor data, earnings results, and investment sentiment remain fuzzy, which frustrates those seeking bold answers. Perhaps, these answers are rarely bold and require flexibility when analyzing ongoing data points. In many ways, those investors, accustomed to trend-following and simple momentum, might have to adjust their strategy.
Perceived Risk
In terms of big picture themes, Europe, along with emerging markets and commodities, are inter-linked in the current weakness. The last few days, financial headlines have highlighted the debt crisis in Spain, Greece, and Portugal. This contributes to a strengthening Dollar, falling currency prices, and a general bias towards risk-aversion. Generally, it’s safe to assume that high volatility leads to moderate panic, which ends up favoring “safer” assets. European conditions are weakening, which is an erosion that stems from the recent credit top. That said, some worries are too early to conclude, especially with only 1/3 of the US stimulus being spent (ProPublica.org). Therefore, one should leave some room for upside surprises to come, despite the recent negative tone.
Positioning
Money managers, whose skills are measured by annual returns, might be less willing to take on significant risk here. It’s too early to risk performance returns at this early stage of the year. Similarly, some wonder if investors sold their winning positions from 2009 in the recent weeks. At least, the turnaround in the US Dollar confirms a further shift towards risk aversion. On a similar point, there is an early movement away from emerging markets and commodities. After a multi-year run, global demand from hard commodities, especially crude, is slowing. Finally, Chinese regulators are recognizing the bubble-like behavior that can put a pause in the explosive run.
Given the points above, a rotation into US equities can be an increasing possibility. At the same time, interest rates are relatively low and some fixed income groups are extended. This sets the stage for a potential capital inflow from foreign investors into US companies. This bodes well for companies reviving their innovation efforts, especially groups related to media, communication, and biotech. For example, in the media sector, a company like FMCN (Focus Media) offers a favorable cycle entry point, management changes, and products with growth potential. Similarly, healthcare companies, like VRUS (Pharmasset, Inc.), are worth a closer look. For instance, Pharmasset, Inc. discovers antiviral drugs and presents a relatively attractive exposure in small cap stocks.
Article Quotes:
“If the Greeks do not regain the markets’ confidence, they may fail to refinance the €20 billion ($28 billion) or so of debt that falls due in April and May. At that point, the government would default or would have to be bailed out. And Greece is not the only country about which the bond markets are worried. On the same day as the commission approved the Greek plans, investors were selling Portuguese bonds. The spread of ten-year bonds against bunds widened by 0.16 percentage points, to 1.43 points.” (The Economist, February 4, 2010 )
"China's government, seeking to stem property speculation, told banks to raise interest rates on third mortgages and demand bigger down payments for such loans... The China Banking Regulatory Commission warned lenders of the risks associated with 'hot money' flowing into the property market... Tighter rules on third mortgages 'should have some effect on home prices, especially in regions such as Hainan,' said May Yan, a...analyst at Nomura International HK Ltd." (Bloomberg, February 3, 2010)
Levels:
S&P 500 [1066.19] is trading near 1060, similar to levels last seen in November 2009. The index remains above its 200-day moving average, standing at 1018. S&P 500 is poised for a near-term recovery in spite of the established downtrend.
Crude [$71.19] has had a recent trading pattern that is in-line with a multi-month range, which is forming between $70 and $75. A step back reminds us that the commodity is establishing a downtrend. Crude struggled to hold above $80 twice in the last 4 months.
Gold [1058] shows no signs of recovery, although, at this point, sellers appear to take a breather. Importantly, Gold peaked earlier than other assets. Perhaps, this selling pressure can provide clues to the condition of this decade-long uptrend.
DXY– US Dollar Index [80.41] is showcasing further evidence of strengthening, as the index surpassed its 200-day moving average. Technicals argue that a key trend reversal is taking hold.
US 10 Year Treasury Yields [3.56%] is hovering above 3.50% as the rates remain in a sideway pattern.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Markets Sway
It is hard to deny the eventful and tricky week that witnessed significant swings. Perhaps, the VIX (volatility index) chart paints a better picture of this trendless action, causing mild unrest. Last week started on a positive note, followed by sharp sell-offs in-between, and ended with a late Friday recovery. That mostly sums up a lively five days of trading at the start of February.
Through this maze, the S&P 500 held above 1035 which marks a 10% correction since January highs. Of course, one should not assume that 10% is a magic number, yet it serves as a gauge to distinguish an inevitable short-term correction from a long-term breakdown. Labor data, earnings results, and investment sentiment remain fuzzy, which frustrates those seeking bold answers. Perhaps, these answers are rarely bold and require flexibility when analyzing ongoing data points. In many ways, those investors, accustomed to trend-following and simple momentum, might have to adjust their strategy.
Perceived Risk
In terms of big picture themes, Europe, along with emerging markets and commodities, are inter-linked in the current weakness. The last few days, financial headlines have highlighted the debt crisis in Spain, Greece, and Portugal. This contributes to a strengthening Dollar, falling currency prices, and a general bias towards risk-aversion. Generally, it’s safe to assume that high volatility leads to moderate panic, which ends up favoring “safer” assets. European conditions are weakening, which is an erosion that stems from the recent credit top. That said, some worries are too early to conclude, especially with only 1/3 of the US stimulus being spent (ProPublica.org). Therefore, one should leave some room for upside surprises to come, despite the recent negative tone.
Positioning
Money managers, whose skills are measured by annual returns, might be less willing to take on significant risk here. It’s too early to risk performance returns at this early stage of the year. Similarly, some wonder if investors sold their winning positions from 2009 in the recent weeks. At least, the turnaround in the US Dollar confirms a further shift towards risk aversion. On a similar point, there is an early movement away from emerging markets and commodities. After a multi-year run, global demand from hard commodities, especially crude, is slowing. Finally, Chinese regulators are recognizing the bubble-like behavior that can put a pause in the explosive run.
Given the points above, a rotation into US equities can be an increasing possibility. At the same time, interest rates are relatively low and some fixed income groups are extended. This sets the stage for a potential capital inflow from foreign investors into US companies. This bodes well for companies reviving their innovation efforts, especially groups related to media, communication, and biotech. For example, in the media sector, a company like FMCN (Focus Media) offers a favorable cycle entry point, management changes, and products with growth potential. Similarly, healthcare companies, like VRUS (Pharmasset, Inc.), are worth a closer look. For instance, Pharmasset, Inc. discovers antiviral drugs and presents a relatively attractive exposure in small cap stocks.
Article Quotes:
“If the Greeks do not regain the markets’ confidence, they may fail to refinance the €20 billion ($28 billion) or so of debt that falls due in April and May. At that point, the government would default or would have to be bailed out. And Greece is not the only country about which the bond markets are worried. On the same day as the commission approved the Greek plans, investors were selling Portuguese bonds. The spread of ten-year bonds against bunds widened by 0.16 percentage points, to 1.43 points.” (The Economist, February 4, 2010 )
"China's government, seeking to stem property speculation, told banks to raise interest rates on third mortgages and demand bigger down payments for such loans... The China Banking Regulatory Commission warned lenders of the risks associated with 'hot money' flowing into the property market... Tighter rules on third mortgages 'should have some effect on home prices, especially in regions such as Hainan,' said May Yan, a...analyst at Nomura International HK Ltd." (Bloomberg, February 3, 2010)
Levels:
S&P 500 [1066.19] is trading near 1060, similar to levels last seen in November 2009. The index remains above its 200-day moving average, standing at 1018. S&P 500 is poised for a near-term recovery in spite of the established downtrend.
Crude [$71.19] has had a recent trading pattern that is in-line with a multi-month range, which is forming between $70 and $75. A step back reminds us that the commodity is establishing a downtrend. Crude struggled to hold above $80 twice in the last 4 months.
Gold [1058] shows no signs of recovery, although, at this point, sellers appear to take a breather. Importantly, Gold peaked earlier than other assets. Perhaps, this selling pressure can provide clues to the condition of this decade-long uptrend.
DXY– US Dollar Index [80.41] is showcasing further evidence of strengthening, as the index surpassed its 200-day moving average. Technicals argue that a key trend reversal is taking hold.
US 10 Year Treasury Yields [3.56%] is hovering above 3.50% as the rates remain in a sideway pattern.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 01, 2010
Market Outlook | February 1, 2010
A perspective:
It’s nearly a year since the markets bounced back following the recent crisis. Plenty wonder, if the fruitful returns last year were a result of economic improvement, low interest policies or simply a usual cycle move. Perhaps, we can conclude that all three factors played a role in the recovery that began last spring. Now, the sustainability of that run is being challenged.
So far, the current pullback seems like a normal pause. That said, in upcoming weeks optimists will be tested in their willingness to purchase assets at a discounted prices. For example, Gold has dropped more than 11% since early December and Nasdaq is 8% cheaper than three weeks ago. In days ahead, investors will get a better gauge of buyer conviction as markets approach key technical levels, await earning announcements and ponder monthly economic data. Meanwhile, bubble-like behavior persists in assets such as China, Commodities and Credit related themes. In other words, previous worries triggered in 2007 continue to resurface as a catalyst for panic selling. However, believers of a new market recovery can plan for opportunistic entry points in months ahead. However, patience might be greatly required in trendless markets, in which investors become more comfortable between stock market behavior and economic conditions.
The debate noise:
Outside of the general business uncertainties there are growing confusions that extend beyond portfolio management. Highly debated and ongoing topics include bailout versus free markets, packaged products versus traditional assets and low interest rate polices versus less interference. The core theme of these debates revolves around the idea and degree of human involvement. Of course, this raises a whole list of sensitive topics beyond the scope of markets. However, these events are difficult to speculate for investors attempting to manage their market exposure. Despite these debates, money managers have to focus on finding growth driven companies that can outperform in this new cycle.
Understanding corrections:
This recent sell-off is hardly a surprise when taking a look at three significant corrections since the lows of March 2009. In all three cases, the S&P 500 failed to correct more than 10% and maintained its uptrend despite the wall of headline worries. Once again, we’re witnessing a selling pressure that’s nearly 7% off the previous top. This can be a reminder for investors not to make a conclusive evidence of a topping market. Let’s also remember that the reward was great for those owning stocks despite several downside moves. Similarly, some argued that buy and hold approach was dead but a strong trend conviction produced multi-month gains last year. At least, we’ve learned many times that surprises are part of the game.
Key S&P 500corrections since March 2009
• [-9.09%] June 11, 2009 – July 8, 2009
• [-5.57%] September 23, 2009- October 2, 2009
• [-6.54%] October 21, 2009- November 2, 2009
Article Quotes:
“Policy makers are addressing the bubbles of 2009. Since the collapse of Lehman Brothers Holdings Inc. in September 2008, the Group of 20 nations has spent more than $2.2 trillion trying to restore growth. Efforts are afoot to take back some of the fiscal and monetary stimulus, and that’s healthy. China, where banks have begun restricting new loans, is responding to a push by regulators to contain credit after a surge in lending. Investors such as Mark Mobius, chairman of Templeton Asset Management Ltd. in Singapore, have a point when they argue that such steps may benefit China’s economy. At a minimum, they will reduce overheating risks and make markets more stable.” (William Pesek. Bloomberg, January 29, 2009)
“The last time the Chinese authorities attempted to deflate an asset price bubble was in January 2007. At that time interest rates were raised, bank reserve requirements increased, and important officials spoke openly about the need to quell speculation. Several commentators anticipated an imminent collapse of the Chinese stock market, which had doubled over the previous year. The outcome was rather different. Over the following months the Shanghai Composite entered a period of exponential growth. The market finally peaked in October 2007 after five rate hikes and 13 increases in bank reserve requirements since the beginning of the year. Experience suggests that recent tightening in Beijing is unlikely to mark the immediate demise of the frenzied Chinese real estate boom. Nevertheless, it brings that end one step closer. (Edward Chancellor. Financial Times, January 31, 2009)”
Levels:
S&P 500 [1073.87] nearly a 7% correction from January 19th 2009 highs. Charts suggest a completion of the first wave of sell-offs as the index fell below 1080.
Crude [$72.89] is narrowly trading between $70-80 in the past 4 months. Like October, the commodity peaked at $80 and its 200 day moving average stands at near $70.
Gold [1078.50] is pausing after a strong reacceleration in mid 2009. Currently, investors are watching if price can stay around 1100. Meanwhile, key moving averages stand near key support of $980
DXY– US Dollar Index [79.46] continues to rise and is up over 7% after bottoming three month ago. Further confirmation is needed to solidify a strengthening dollar.
US 10 Year Treasury Yields [3.58%] Consolidating between 3.55-3.60% as the 50 day moving average stands at 3.37%
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
It’s nearly a year since the markets bounced back following the recent crisis. Plenty wonder, if the fruitful returns last year were a result of economic improvement, low interest policies or simply a usual cycle move. Perhaps, we can conclude that all three factors played a role in the recovery that began last spring. Now, the sustainability of that run is being challenged.
So far, the current pullback seems like a normal pause. That said, in upcoming weeks optimists will be tested in their willingness to purchase assets at a discounted prices. For example, Gold has dropped more than 11% since early December and Nasdaq is 8% cheaper than three weeks ago. In days ahead, investors will get a better gauge of buyer conviction as markets approach key technical levels, await earning announcements and ponder monthly economic data. Meanwhile, bubble-like behavior persists in assets such as China, Commodities and Credit related themes. In other words, previous worries triggered in 2007 continue to resurface as a catalyst for panic selling. However, believers of a new market recovery can plan for opportunistic entry points in months ahead. However, patience might be greatly required in trendless markets, in which investors become more comfortable between stock market behavior and economic conditions.
The debate noise:
Outside of the general business uncertainties there are growing confusions that extend beyond portfolio management. Highly debated and ongoing topics include bailout versus free markets, packaged products versus traditional assets and low interest rate polices versus less interference. The core theme of these debates revolves around the idea and degree of human involvement. Of course, this raises a whole list of sensitive topics beyond the scope of markets. However, these events are difficult to speculate for investors attempting to manage their market exposure. Despite these debates, money managers have to focus on finding growth driven companies that can outperform in this new cycle.
Understanding corrections:
This recent sell-off is hardly a surprise when taking a look at three significant corrections since the lows of March 2009. In all three cases, the S&P 500 failed to correct more than 10% and maintained its uptrend despite the wall of headline worries. Once again, we’re witnessing a selling pressure that’s nearly 7% off the previous top. This can be a reminder for investors not to make a conclusive evidence of a topping market. Let’s also remember that the reward was great for those owning stocks despite several downside moves. Similarly, some argued that buy and hold approach was dead but a strong trend conviction produced multi-month gains last year. At least, we’ve learned many times that surprises are part of the game.
Key S&P 500corrections since March 2009
• [-9.09%] June 11, 2009 – July 8, 2009
• [-5.57%] September 23, 2009- October 2, 2009
• [-6.54%] October 21, 2009- November 2, 2009
Article Quotes:
“Policy makers are addressing the bubbles of 2009. Since the collapse of Lehman Brothers Holdings Inc. in September 2008, the Group of 20 nations has spent more than $2.2 trillion trying to restore growth. Efforts are afoot to take back some of the fiscal and monetary stimulus, and that’s healthy. China, where banks have begun restricting new loans, is responding to a push by regulators to contain credit after a surge in lending. Investors such as Mark Mobius, chairman of Templeton Asset Management Ltd. in Singapore, have a point when they argue that such steps may benefit China’s economy. At a minimum, they will reduce overheating risks and make markets more stable.” (William Pesek. Bloomberg, January 29, 2009)
“The last time the Chinese authorities attempted to deflate an asset price bubble was in January 2007. At that time interest rates were raised, bank reserve requirements increased, and important officials spoke openly about the need to quell speculation. Several commentators anticipated an imminent collapse of the Chinese stock market, which had doubled over the previous year. The outcome was rather different. Over the following months the Shanghai Composite entered a period of exponential growth. The market finally peaked in October 2007 after five rate hikes and 13 increases in bank reserve requirements since the beginning of the year. Experience suggests that recent tightening in Beijing is unlikely to mark the immediate demise of the frenzied Chinese real estate boom. Nevertheless, it brings that end one step closer. (Edward Chancellor. Financial Times, January 31, 2009)”
Levels:
S&P 500 [1073.87] nearly a 7% correction from January 19th 2009 highs. Charts suggest a completion of the first wave of sell-offs as the index fell below 1080.
Crude [$72.89] is narrowly trading between $70-80 in the past 4 months. Like October, the commodity peaked at $80 and its 200 day moving average stands at near $70.
Gold [1078.50] is pausing after a strong reacceleration in mid 2009. Currently, investors are watching if price can stay around 1100. Meanwhile, key moving averages stand near key support of $980
DXY– US Dollar Index [79.46] continues to rise and is up over 7% after bottoming three month ago. Further confirmation is needed to solidify a strengthening dollar.
US 10 Year Treasury Yields [3.58%] Consolidating between 3.55-3.60% as the 50 day moving average stands at 3.37%
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Sunday, January 24, 2010
Market Outlook | January 25, 2010
“Sanity calms, but madness is more interesting.” - John Russell
Absorbing Results:
As anticipated, markets that started the short holiday week extended and remained in a decline mode. On Friday, January 15, 2010, right before options expiration; Technicals gave early clues of a peaking market. A week later, investors are wondering as to the magnitude of this selling pressure. That said, veterans and well experienced pattern observers noticed the early possibility of pullbacks. Importantly, news flow anxiety was building with increased sensitivity for bad news, especially heading into earnings season and regulatory chatters. This is highlighted by a one-day, 22% jump in volatility this past Friday. This was a favorable action for short sellers and served as a minor surprise for the casual participants. Nonetheless, it is important to distinguish short-term behaviors versus long-term outlook. Again, fighting the wave of fears and staying focused on investment thesis is the challenge ahead for professional money managers.
Reassessing Previous Points:
Global assets are declining in a synchronized manner, which looks familiar to 2008 corrections. Yet again, it was commodities and emerging markets that led this retracement along with Financials. Clearly, higher beta themes are more sensitive. This is explained by the weekly results in which key lagging sectors included Gold -9.59%, Alternative Energy -9.96%, and Steel -11.28%. In upcoming days, these performance results can shape investor sentiment for the rest of the quarter.
Similarly, Asian stock markets declined for six consecutive days. To put things in perspective, it was only a period of a few months ago in which global policymakers discussed various tools to cool several overheating economies. Now, this early negative market tone has the potential to produce plenty of arguments of support for a significant market decline. These arguments might gain traction, especially with the S&P 500 being down 2.1% so far this year. Partially, this is understandable after a profitable 2009, where investors are deciding to take profits. Also, given uncertainties and slowing momentum some managers will seek the sidelines as a safer route.
Balancing Extreme Views:
It might be wise to digest earnings, interest rate policies, and pending regulations, while accepting the inevitable results of an overbought stock market. In looking ahead, there are two extremes that can be classified as potential knee-jerk reactions. First, optimists might decide to buy on weakness without closely examining the macroeconomic and sentiment environment. On the other hand, investors might sell on panic without evaluating the upside potential of select quality companies. In both cases, one must stay patient to understand the market performance drivers and to dismiss short-term noise. That said, quality companies with innovative growth potential might be offered at a discount, and they may be worth a look at attractive entry points in months ahead. Meanwhile, themes related to China, Credit, and Crude are less favorable in the current cycle. A step back reminds us that these groups were clear winners in the last decade, and they appear pricy when applying basic valuations.
Article Quotes:
“The recent rise in inflation was caused mainly by higher food prices as a result of severe winter weather in northern China. In many cities, fresh-vegetable prices have more than doubled in the past two months. But Helen Qiao and Yu Song at Goldman Sachs argue that it is not just food prices that risk pushing up inflation: the economy is starting to exceed its speed limit. If, as China bears contend, the economy had massive overcapacity, there would be little to worry about: excess supply would hold down prices. But bottlenecks are already appearing. Some provinces report electricity shortages and stocks of coal are low. The labour market is also tightening, forcing firms to pay higher wages.”(Economist, Jan 21, 2010)
“The main focus of financial reform should be to address such systemic risk. Separating commercial banking and other forms of financial intermediation from proprietary trading is a step in the right direction, since it limits systemic risk without affecting the financial sector’s ability to perform its core functions. This is because there is little evidence of any economies of scale that argue persuasively for principal investing to be located inside a financial conglomerate. In fact, the primary advantage appears to be that these institutions become too big to fail, and end up with access to a low cost of funding as a result of government guarantees. But, as seen from this crisis, the direct and indirect costs of government forbearance in a systemic crisis can be huge.” (Financial Times, January 22, 2010)
Levels:
S&P 500 [1091.76] has significant downside moves that are taking hold after stalling. Currently, index is nearly 8% removed from its 200 day moving average.
Crude [$74.50] is defined in a short-term weakness that began two weeks ago. Next level that’s highly watched is based on a previous pattern around $70. That’s close to its 200 day moving average of $69.35. Both add up for further selling pressures, which can decelerate price movement given this technical set up.
Gold [1084] has increasing odds for the commodity to trade between 1100 and 1150. Further unwinding is ahead, following a strong, multi-month run. Gold maintains its long-term uptrend above $980.
DXY– US Dollar Index [78.27] has had a 3 month recovery that’s over 6% from November 2009 lows to January 2010 highs. There will be a highly watched trend-shift regarding a weak Dollar policy ahead. Again, it may be too early to call a bottom, but the pattern suggests a shift.
US 10 Year Treasury Yields [3.60%] stalled at 3.80% yet again, while attempting to hold above 3.60%. However, rates singled some recovery point around the 3.20% range, which impacted the outlook of many investors.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Absorbing Results:
As anticipated, markets that started the short holiday week extended and remained in a decline mode. On Friday, January 15, 2010, right before options expiration; Technicals gave early clues of a peaking market. A week later, investors are wondering as to the magnitude of this selling pressure. That said, veterans and well experienced pattern observers noticed the early possibility of pullbacks. Importantly, news flow anxiety was building with increased sensitivity for bad news, especially heading into earnings season and regulatory chatters. This is highlighted by a one-day, 22% jump in volatility this past Friday. This was a favorable action for short sellers and served as a minor surprise for the casual participants. Nonetheless, it is important to distinguish short-term behaviors versus long-term outlook. Again, fighting the wave of fears and staying focused on investment thesis is the challenge ahead for professional money managers.
Reassessing Previous Points:
Global assets are declining in a synchronized manner, which looks familiar to 2008 corrections. Yet again, it was commodities and emerging markets that led this retracement along with Financials. Clearly, higher beta themes are more sensitive. This is explained by the weekly results in which key lagging sectors included Gold -9.59%, Alternative Energy -9.96%, and Steel -11.28%. In upcoming days, these performance results can shape investor sentiment for the rest of the quarter.
Similarly, Asian stock markets declined for six consecutive days. To put things in perspective, it was only a period of a few months ago in which global policymakers discussed various tools to cool several overheating economies. Now, this early negative market tone has the potential to produce plenty of arguments of support for a significant market decline. These arguments might gain traction, especially with the S&P 500 being down 2.1% so far this year. Partially, this is understandable after a profitable 2009, where investors are deciding to take profits. Also, given uncertainties and slowing momentum some managers will seek the sidelines as a safer route.
Balancing Extreme Views:
It might be wise to digest earnings, interest rate policies, and pending regulations, while accepting the inevitable results of an overbought stock market. In looking ahead, there are two extremes that can be classified as potential knee-jerk reactions. First, optimists might decide to buy on weakness without closely examining the macroeconomic and sentiment environment. On the other hand, investors might sell on panic without evaluating the upside potential of select quality companies. In both cases, one must stay patient to understand the market performance drivers and to dismiss short-term noise. That said, quality companies with innovative growth potential might be offered at a discount, and they may be worth a look at attractive entry points in months ahead. Meanwhile, themes related to China, Credit, and Crude are less favorable in the current cycle. A step back reminds us that these groups were clear winners in the last decade, and they appear pricy when applying basic valuations.
Article Quotes:
“The recent rise in inflation was caused mainly by higher food prices as a result of severe winter weather in northern China. In many cities, fresh-vegetable prices have more than doubled in the past two months. But Helen Qiao and Yu Song at Goldman Sachs argue that it is not just food prices that risk pushing up inflation: the economy is starting to exceed its speed limit. If, as China bears contend, the economy had massive overcapacity, there would be little to worry about: excess supply would hold down prices. But bottlenecks are already appearing. Some provinces report electricity shortages and stocks of coal are low. The labour market is also tightening, forcing firms to pay higher wages.”(Economist, Jan 21, 2010)
“The main focus of financial reform should be to address such systemic risk. Separating commercial banking and other forms of financial intermediation from proprietary trading is a step in the right direction, since it limits systemic risk without affecting the financial sector’s ability to perform its core functions. This is because there is little evidence of any economies of scale that argue persuasively for principal investing to be located inside a financial conglomerate. In fact, the primary advantage appears to be that these institutions become too big to fail, and end up with access to a low cost of funding as a result of government guarantees. But, as seen from this crisis, the direct and indirect costs of government forbearance in a systemic crisis can be huge.” (Financial Times, January 22, 2010)
Levels:
S&P 500 [1091.76] has significant downside moves that are taking hold after stalling. Currently, index is nearly 8% removed from its 200 day moving average.
Crude [$74.50] is defined in a short-term weakness that began two weeks ago. Next level that’s highly watched is based on a previous pattern around $70. That’s close to its 200 day moving average of $69.35. Both add up for further selling pressures, which can decelerate price movement given this technical set up.
Gold [1084] has increasing odds for the commodity to trade between 1100 and 1150. Further unwinding is ahead, following a strong, multi-month run. Gold maintains its long-term uptrend above $980.
DXY– US Dollar Index [78.27] has had a 3 month recovery that’s over 6% from November 2009 lows to January 2010 highs. There will be a highly watched trend-shift regarding a weak Dollar policy ahead. Again, it may be too early to call a bottom, but the pattern suggests a shift.
US 10 Year Treasury Yields [3.60%] stalled at 3.80% yet again, while attempting to hold above 3.60%. However, rates singled some recovery point around the 3.20% range, which impacted the outlook of many investors.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 18, 2010
Market Outlook | January 18, 2010
“Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.” - Bertrand Russell (1872 - 1970)
Current Feel:
At this stage, US markets appear extended after a strong multi-month run. In the near-term, a bumpy road is ahead with technical pausing, upcoming decisions by the Federal Reserve, and quarterly earnings results. The current bullish bias remains feasible from a cycle perspective. Now this long-term view will be challenged as participants become overly sensitive to the bad news affecting day-to-day trading. Options expired last Friday and showcased a slight increase in volatility. For the most part, it was inevitable and to be expected. Of course, volatility has remained low, nearing levels that were last seen before the crux of the financial crisis. In addition, stocks and commodities are moving lower as tightening liquidity is becoming an interest for global policymakers. For example, China is increasing its bank reserve requirement as another tool of easing the ongoing bubble of overheating assets.
The US 10 Year Yields recovered recently, but the sustainability of rising rates remains doubtful. Interestingly, there is anxiety in regards to rising interest rates. This behavior is visible as investors rush to raise money from bond markets. This panic-like response towards rates might be an overreaction and worth watching closely. That said, more attention will focus on macro inflection points where, collectively, investors await catalysts to result in a trend shift. Similarly, at this junction, investors are realizing that timely entry points are tricky, versus spring 2009.
Big Picture Trends:
Trends are favoring small cap and innovative based areas in the past few weeks. Non large cap themes were showcasing a positive momentum, mainly at the end of last year. Beneficiaries of this strength include Technology and Healthcare, which require company specific picks for fruitful outperformance. In addition, multi-year cycle favors these sectors, despite a pending broad market correction. Similarly, small to mid size companies are subject to consolidation, especially with increasing talks of Merger & Acquisitions. Therefore, at the end of earnings season, observers can distinguish leaders and reposition into companies, gaining fundamental strength. Innovative companies within smaller caps can be attractive, especially with solid earnings growth. Selecting ideas that fit these themes might be favorable in Biotech, Semiconductors, and Communication based areas.
Vulnerable areas:
Decade long winners are highlighted by emerging markets and commodities, which are not cheaply valued in traditional measures. Adding these ideas into portfolios has greater risks and the fear of limited upside moves. Some observers are noticing that these escalated levels present a fragile point with rising expectations. However, given the 2007/08 correction, it paints a picture that we’re still removed from all-time highs. In other words, optimists believe that previous highs will be revisited and potentially surpassed. As usual, investors need more confirmation, mostly for psychological comfort. And, certainly, government intervention will play a big role as investors react based on news flow, government policies, and regulatory events. In terms of stocks, fundamentals for Energy related areas are expected to decline, and, if that materializes, it can then trigger a market sell-off. That said, in the days and weeks ahead, material and commodity based companies can lead on downside moves.
Article Quotes:
“Even so, we believe a full-blown dollar crisis — involving a collapse in our currency and an inability to pay our debts — is unlikely. Fears over the dollar often surface during times of fiscal stress, only to fade when conditions ease. As a Goldman Sachs report recently noted, "fears over demise of the U.S. dollar seem to resurface every 10-15 years." And here they are again. Indeed, we've been hearing for years the dollar is already in crisis. But as the chart shows, the trade-weighted dollar index shows the greenback is actually higher than during the 1990s Internet boom. Foreign investors hold trillions of dollars in U.S. debt. They could decide to dump them, putting severe pressure on our currency. But that would also do damage to their own balance sheets.” (Investors Business Daily, January 15, 2010)
“The 50 biggest stocks in the S&P 500 are up an average of 2.4% year to date. The 50 smallest stocks in the index are up an average of 6.5%. In general, the bigger the stock, the smaller the gain so far in 2010.” (Bespoke Investments, January 14, 2010)
Levels:
S&P 500 [1136] is recently showing signs of stalling around 1150 and is due to pause closer to the 10-day moving average of 1140.
Crude [$78.00], retraced from January 11 highs of $83.95, highlights the recent peak. Multiple timeframe analysis suggests increasing odds of pending pullbacks.
Gold [1128] is trading between a defined trend of around 1100-1150. Long-term trend is positive but not a favorable entry point.
DXY– US Dollar Index [77.32] is attempting to maintain its recovery around $77. In the next few weeks, events should determine the strength and legitimacy behind a stronger Dollar.
US 10 Year Treasury Yields [3.67%] is slowly declining after a strong run in late December. In the past 8 months, yields have failed to surpass the 3.80% range. Once again, a similar set up is taking hold. Next key support levels reside at 3.60% and 3.40%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Current Feel:
At this stage, US markets appear extended after a strong multi-month run. In the near-term, a bumpy road is ahead with technical pausing, upcoming decisions by the Federal Reserve, and quarterly earnings results. The current bullish bias remains feasible from a cycle perspective. Now this long-term view will be challenged as participants become overly sensitive to the bad news affecting day-to-day trading. Options expired last Friday and showcased a slight increase in volatility. For the most part, it was inevitable and to be expected. Of course, volatility has remained low, nearing levels that were last seen before the crux of the financial crisis. In addition, stocks and commodities are moving lower as tightening liquidity is becoming an interest for global policymakers. For example, China is increasing its bank reserve requirement as another tool of easing the ongoing bubble of overheating assets.
The US 10 Year Yields recovered recently, but the sustainability of rising rates remains doubtful. Interestingly, there is anxiety in regards to rising interest rates. This behavior is visible as investors rush to raise money from bond markets. This panic-like response towards rates might be an overreaction and worth watching closely. That said, more attention will focus on macro inflection points where, collectively, investors await catalysts to result in a trend shift. Similarly, at this junction, investors are realizing that timely entry points are tricky, versus spring 2009.
Big Picture Trends:
Trends are favoring small cap and innovative based areas in the past few weeks. Non large cap themes were showcasing a positive momentum, mainly at the end of last year. Beneficiaries of this strength include Technology and Healthcare, which require company specific picks for fruitful outperformance. In addition, multi-year cycle favors these sectors, despite a pending broad market correction. Similarly, small to mid size companies are subject to consolidation, especially with increasing talks of Merger & Acquisitions. Therefore, at the end of earnings season, observers can distinguish leaders and reposition into companies, gaining fundamental strength. Innovative companies within smaller caps can be attractive, especially with solid earnings growth. Selecting ideas that fit these themes might be favorable in Biotech, Semiconductors, and Communication based areas.
Vulnerable areas:
Decade long winners are highlighted by emerging markets and commodities, which are not cheaply valued in traditional measures. Adding these ideas into portfolios has greater risks and the fear of limited upside moves. Some observers are noticing that these escalated levels present a fragile point with rising expectations. However, given the 2007/08 correction, it paints a picture that we’re still removed from all-time highs. In other words, optimists believe that previous highs will be revisited and potentially surpassed. As usual, investors need more confirmation, mostly for psychological comfort. And, certainly, government intervention will play a big role as investors react based on news flow, government policies, and regulatory events. In terms of stocks, fundamentals for Energy related areas are expected to decline, and, if that materializes, it can then trigger a market sell-off. That said, in the days and weeks ahead, material and commodity based companies can lead on downside moves.
Article Quotes:
“Even so, we believe a full-blown dollar crisis — involving a collapse in our currency and an inability to pay our debts — is unlikely. Fears over the dollar often surface during times of fiscal stress, only to fade when conditions ease. As a Goldman Sachs report recently noted, "fears over demise of the U.S. dollar seem to resurface every 10-15 years." And here they are again. Indeed, we've been hearing for years the dollar is already in crisis. But as the chart shows, the trade-weighted dollar index shows the greenback is actually higher than during the 1990s Internet boom. Foreign investors hold trillions of dollars in U.S. debt. They could decide to dump them, putting severe pressure on our currency. But that would also do damage to their own balance sheets.” (Investors Business Daily, January 15, 2010)
“The 50 biggest stocks in the S&P 500 are up an average of 2.4% year to date. The 50 smallest stocks in the index are up an average of 6.5%. In general, the bigger the stock, the smaller the gain so far in 2010.” (Bespoke Investments, January 14, 2010)
Levels:
S&P 500 [1136] is recently showing signs of stalling around 1150 and is due to pause closer to the 10-day moving average of 1140.
Crude [$78.00], retraced from January 11 highs of $83.95, highlights the recent peak. Multiple timeframe analysis suggests increasing odds of pending pullbacks.
Gold [1128] is trading between a defined trend of around 1100-1150. Long-term trend is positive but not a favorable entry point.
DXY– US Dollar Index [77.32] is attempting to maintain its recovery around $77. In the next few weeks, events should determine the strength and legitimacy behind a stronger Dollar.
US 10 Year Treasury Yields [3.67%] is slowly declining after a strong run in late December. In the past 8 months, yields have failed to surpass the 3.80% range. Once again, a similar set up is taking hold. Next key support levels reside at 3.60% and 3.40%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 11, 2010
Market Outlook | January 11, 2010
“The more you know, the less you need.” - Aboriginal Saying
Another week of rising markets reiterates the established theme of strong markets and a weak labor environment. At the same time, there are growing temptations among pundits to call for downside moves as part of growing anxiousness. In looking ahead, quarterly earnings reports should reveal the mood for the first quarter. Also, economic results and a much anticipated Federal Reserve policy on interest rates are on the radar.
Delicate Territory:
Charts suggest that we are extended in the near-term and poised for moderate sell-offs. This causes investors to assess the possibility of losing out on gains during this recovery. Of course, the comfort level has increased on each higher point move. Right now, as indexes reach 52- week highs, some are considering backing off, while others will look to hedge. For those waiting for cheaper stock prices, even a 10% pullback might be viewed as healthy. However, pullbacks since March 2009 have failed to drop significantly. Importantly, the multi-year cycle recovery is a powerful force, and it should not be underestimated, as learned in 2009. However, a few questions, regarding this trend, will have to be answered in the weeks ahead.
First Quarter Feel:
A casual observer may guess that earnings can possibly present the first glitch towards this uptrend. Basically, this season of earnings provides a reality check and another perspective in gauging sentiment. In other words, the status of the company balance sheet can either convince sideline participants to buy or calm the nerves of those already heavily invested. To fuel this ongoing rally, one must examine the potential data output and interpretations. Now, for most investors, the leaders of this ongoing uptrend are becoming clearer, and only a small amount of portfolio reshuffling may be required. In other words, risky assets have worked, such as high yield bonds, higher beta stocks, and China related groups. Of course, the risk of adding to an existing trend is either missing the right security or an inverse impact from declining broad markets. However, surprises between now and then will determine the direction and mood around early spring. For now, the bullish bias is intact, even though skepticism lingers and trading volume remains low.
Recent Clues:
Technology and Emerging Market related stocks have showcased relative leadership for the most part of this rally. Now, if weakness persists, bargain hunters would seek to add to both groups. In the same way, small cap has been outperforming large cap, especially since late November 2009. Interestingly, in the same period, the US Dollar is strengthening as well. Perhaps it is a coincidence, but it is an intriguing relationship for those looking for new trends within the second phase of this recovering rally.
Article Quotes:
“’The [Chinese] government also approved margin trading and short selling,’ the China Securities Regulatory Commission said in a statement on its website today. ‘It may take three months to complete preparations for index futures,’ the regulator said. Index futures, agreements to buy or sell an index at a preset value on an agreed date, may help ease fluctuations after the Shanghai Composite Index doubled in 2007, then slumped 65 percent in 2008 before rebounding last year. Until now, Chinese investors could only profit from gains in equities.” (Bloomberg, January 8, 2010)
“Even as some would have you believe that you have to be insane to buy stocks heading into 2010, there are many positive factors that investors can point to as reasons to be bullish. However, one that you won't hear being cited is valuation. Based on trailing earnings, the average P/E ratio of the S&P 500 during the decade that just ended was higher than any other decade in its history. Even after declining since the turn of the century, the average P/E ratio for the '00s rose to a record high of 20.2, and, at the end of December '09, it stood at 27.9 (on an operating basis).” (Bespoke, January 5, 2010)
Levels:
S&P 500 [1144.98] is 13% removed from its 200-day moving average, and it extended in the near-term. However, a shallow correction points to the first key point at 1080. Secondly, around a 10% correction places the index around 1040-1030.
Crude [$82.75] is surpassing previous highs, after a 21% rally that started in mid December. It is setting up for a short-term pause.
Gold [1126.75] attempts to revisit $1212, which marked annual highs in 2009. Buyer interest around 1100 appears to hold.
DXY– US Dollar Index [77.47] is pausing after a late 5% run in the late part of last year. Confirmation is needed to solidify this recent trend reversal.
US 10 Year Treasury Yields [3.82%] has not had much movement since last week. It is stabilizing at current levels after a significant run up.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Another week of rising markets reiterates the established theme of strong markets and a weak labor environment. At the same time, there are growing temptations among pundits to call for downside moves as part of growing anxiousness. In looking ahead, quarterly earnings reports should reveal the mood for the first quarter. Also, economic results and a much anticipated Federal Reserve policy on interest rates are on the radar.
Delicate Territory:
Charts suggest that we are extended in the near-term and poised for moderate sell-offs. This causes investors to assess the possibility of losing out on gains during this recovery. Of course, the comfort level has increased on each higher point move. Right now, as indexes reach 52- week highs, some are considering backing off, while others will look to hedge. For those waiting for cheaper stock prices, even a 10% pullback might be viewed as healthy. However, pullbacks since March 2009 have failed to drop significantly. Importantly, the multi-year cycle recovery is a powerful force, and it should not be underestimated, as learned in 2009. However, a few questions, regarding this trend, will have to be answered in the weeks ahead.
First Quarter Feel:
A casual observer may guess that earnings can possibly present the first glitch towards this uptrend. Basically, this season of earnings provides a reality check and another perspective in gauging sentiment. In other words, the status of the company balance sheet can either convince sideline participants to buy or calm the nerves of those already heavily invested. To fuel this ongoing rally, one must examine the potential data output and interpretations. Now, for most investors, the leaders of this ongoing uptrend are becoming clearer, and only a small amount of portfolio reshuffling may be required. In other words, risky assets have worked, such as high yield bonds, higher beta stocks, and China related groups. Of course, the risk of adding to an existing trend is either missing the right security or an inverse impact from declining broad markets. However, surprises between now and then will determine the direction and mood around early spring. For now, the bullish bias is intact, even though skepticism lingers and trading volume remains low.
Recent Clues:
Technology and Emerging Market related stocks have showcased relative leadership for the most part of this rally. Now, if weakness persists, bargain hunters would seek to add to both groups. In the same way, small cap has been outperforming large cap, especially since late November 2009. Interestingly, in the same period, the US Dollar is strengthening as well. Perhaps it is a coincidence, but it is an intriguing relationship for those looking for new trends within the second phase of this recovering rally.
Article Quotes:
“’The [Chinese] government also approved margin trading and short selling,’ the China Securities Regulatory Commission said in a statement on its website today. ‘It may take three months to complete preparations for index futures,’ the regulator said. Index futures, agreements to buy or sell an index at a preset value on an agreed date, may help ease fluctuations after the Shanghai Composite Index doubled in 2007, then slumped 65 percent in 2008 before rebounding last year. Until now, Chinese investors could only profit from gains in equities.” (Bloomberg, January 8, 2010)
“Even as some would have you believe that you have to be insane to buy stocks heading into 2010, there are many positive factors that investors can point to as reasons to be bullish. However, one that you won't hear being cited is valuation. Based on trailing earnings, the average P/E ratio of the S&P 500 during the decade that just ended was higher than any other decade in its history. Even after declining since the turn of the century, the average P/E ratio for the '00s rose to a record high of 20.2, and, at the end of December '09, it stood at 27.9 (on an operating basis).” (Bespoke, January 5, 2010)
Levels:
S&P 500 [1144.98] is 13% removed from its 200-day moving average, and it extended in the near-term. However, a shallow correction points to the first key point at 1080. Secondly, around a 10% correction places the index around 1040-1030.
Crude [$82.75] is surpassing previous highs, after a 21% rally that started in mid December. It is setting up for a short-term pause.
Gold [1126.75] attempts to revisit $1212, which marked annual highs in 2009. Buyer interest around 1100 appears to hold.
DXY– US Dollar Index [77.47] is pausing after a late 5% run in the late part of last year. Confirmation is needed to solidify this recent trend reversal.
US 10 Year Treasury Yields [3.82%] has not had much movement since last week. It is stabilizing at current levels after a significant run up.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 04, 2010
Market Outlook | January 4, 2009
Market Outlook | January 4, 2009
“Not only is the universe stranger than we imagine, it is stranger than we can imagine.” Sir Arthur Eddington
Big Picture | Rates
For most of last decade, forecasts of Crude prices by analysts and economists provided numerous moments of suspense. That was an eye -grabbing topic that had many investors watching closely. Interestingly enough, the idea worked on the upside and quickly became a mainstream issue. These debates among forecasters were over the ability of prices to stay around $30 or exceed $100. Beyond those forecasts, the intrigue of geopolitical factors created uneasiness and growing curiosity. This made sense, given the global nature of the commodity and a favorable multi-year cycle.
Now, a similar set up is taking place regarding interest rates. At the moment, expectations call for rates in the US 10 Year Treasury as high as 5.50% and some below 3%. Interestingly, with all extremes views, the truth finds its way somewhere within that range. We can always leave some room for extraordinary events. Either way, these speculative chatters are not breaking news, but they can mark subtle shifts in investor psychology. It simply suggests that rates are a key driver of financial markets. As usual, there are uncertainties in behaviors of those funding US debt. Perhaps, major changes in these dynamics can serve as a catalyst for rate spikes. The political nature of this call, combined with Federal Reserve policies, reiterates how rate direction leads to sensitive investor response, especially in the first half of this year. These factors ignite some of the complexities and challenges for money managers, who are looking to adjust their bets after a smooth sailing 2009.
Stock Market vs. Economy
Improving economic conditions are expected by many, and they are setting up higher expectations. At this point, if outlook matches reality, then investors will have to rethink their overall stock market view. For example, even weakening economic data did not stop the S&P 500 from rallying in the spring of 2009. Now, this begs the next question, what happens if positive economic conditions fail to trigger positive broad market returns? As we maintain a bullish market momentum, any minor turbulence can cause uneasiness and higher volatility. Again, the S&P 500 measures performance of larger US companies, and it is not a barometer for the well-being of the country. This is a distinction that is easily confused. Therefore, broad market indexes serve as a gauge to track a segment of financial markets. That said, beyond being a score keeping tool, these instruments shape one’s mood and plan of action. Currently, the sentiment indicators of investments are very positive as well as leading contrarians to worry of blindside surprises.
Connecting Dots
As highly publicized, China’s policies can strongly influence US interest rates, emerging market assets, and currency related policies. This is a powerful force in an intertwined global marketplace that crosses various, asset classes. Similarly, the speculative nature of Gold is reached unstable concerns, especially in emerging markets. For example, Vietnam is halting gold trading, due to frenzy demand, which contributes to increasing global imbalance. At the same time, regulatory decisions are expected to cause some reactions by investors. This leaves money managers to commit lightly to themes, while keeping another eye open to the collective attitudes of lawmakers.
Article Quotes:
“Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: ‘With employment less than full ... all the debunked mercantilistic arguments’ — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — ‘turn out to be valid.’ He then went on to argue that persistently misaligned exchange rates create ‘genuine problems for free-trade apologetics.’ The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.” (New York Times, December 31, 2009)
"Fannie Mae and Freddie Mac, the linchpins of the American housing market, continue to bedevil the U.S. financial system. In February 2003, their regulator issued a report saying the companies were taking on too much risk by using implicit government backing to plunge deeper into the mortgage market... Five years later, regulators seized the mortgage-finance companies. Since then, leaders... have argued the companies can't be sustained in their dual roles -- a for-profit enterprise beholden to shareholders and a tool of housing policy -- and should be nationalized or sold. Nothing has happened. Instead, Fannie Mae and Freddie Mac, which buy home mortgages from banks and package them into bonds sold to investors, have been bailed out with $1.5 trillion in direct and indirect government aid." (Bloomberg, December 28, 2009)
Levels:
S&P 500 [1115.10] Index is up nearly 30% since July 8th 2009, which marked the second meaningful buying opportunity. In the last two months, 1100 has showcased to be a key stabilization level.
Crude [$79.36], in the past few months, has demonstrated strengths around $65 and $70. A sharp recovery, in the past two weeks, confirms a positive trend as prices near 2009 highs of $82. However, the sustainability of short-term moves will be tested.
Gold [$1085] has an inflection point that resides around $1050. A key point that should provide a better read on buyer’s enthusiasm. Importantly, a confirmation is needed to solidify early December run up.
DXY– US Dollar Index [77.95] has early phases in the recovery process. The next upside target is around 80.
US 10 Year Treasury Yields [3.83%] have rallied, twice in a three month period, above 3.20%. Once again, investors will watch the 4% as a turning point.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
“Not only is the universe stranger than we imagine, it is stranger than we can imagine.” Sir Arthur Eddington
Big Picture | Rates
For most of last decade, forecasts of Crude prices by analysts and economists provided numerous moments of suspense. That was an eye -grabbing topic that had many investors watching closely. Interestingly enough, the idea worked on the upside and quickly became a mainstream issue. These debates among forecasters were over the ability of prices to stay around $30 or exceed $100. Beyond those forecasts, the intrigue of geopolitical factors created uneasiness and growing curiosity. This made sense, given the global nature of the commodity and a favorable multi-year cycle.
Now, a similar set up is taking place regarding interest rates. At the moment, expectations call for rates in the US 10 Year Treasury as high as 5.50% and some below 3%. Interestingly, with all extremes views, the truth finds its way somewhere within that range. We can always leave some room for extraordinary events. Either way, these speculative chatters are not breaking news, but they can mark subtle shifts in investor psychology. It simply suggests that rates are a key driver of financial markets. As usual, there are uncertainties in behaviors of those funding US debt. Perhaps, major changes in these dynamics can serve as a catalyst for rate spikes. The political nature of this call, combined with Federal Reserve policies, reiterates how rate direction leads to sensitive investor response, especially in the first half of this year. These factors ignite some of the complexities and challenges for money managers, who are looking to adjust their bets after a smooth sailing 2009.
Stock Market vs. Economy
Improving economic conditions are expected by many, and they are setting up higher expectations. At this point, if outlook matches reality, then investors will have to rethink their overall stock market view. For example, even weakening economic data did not stop the S&P 500 from rallying in the spring of 2009. Now, this begs the next question, what happens if positive economic conditions fail to trigger positive broad market returns? As we maintain a bullish market momentum, any minor turbulence can cause uneasiness and higher volatility. Again, the S&P 500 measures performance of larger US companies, and it is not a barometer for the well-being of the country. This is a distinction that is easily confused. Therefore, broad market indexes serve as a gauge to track a segment of financial markets. That said, beyond being a score keeping tool, these instruments shape one’s mood and plan of action. Currently, the sentiment indicators of investments are very positive as well as leading contrarians to worry of blindside surprises.
Connecting Dots
As highly publicized, China’s policies can strongly influence US interest rates, emerging market assets, and currency related policies. This is a powerful force in an intertwined global marketplace that crosses various, asset classes. Similarly, the speculative nature of Gold is reached unstable concerns, especially in emerging markets. For example, Vietnam is halting gold trading, due to frenzy demand, which contributes to increasing global imbalance. At the same time, regulatory decisions are expected to cause some reactions by investors. This leaves money managers to commit lightly to themes, while keeping another eye open to the collective attitudes of lawmakers.
Article Quotes:
“Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: ‘With employment less than full ... all the debunked mercantilistic arguments’ — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — ‘turn out to be valid.’ He then went on to argue that persistently misaligned exchange rates create ‘genuine problems for free-trade apologetics.’ The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.” (New York Times, December 31, 2009)
"Fannie Mae and Freddie Mac, the linchpins of the American housing market, continue to bedevil the U.S. financial system. In February 2003, their regulator issued a report saying the companies were taking on too much risk by using implicit government backing to plunge deeper into the mortgage market... Five years later, regulators seized the mortgage-finance companies. Since then, leaders... have argued the companies can't be sustained in their dual roles -- a for-profit enterprise beholden to shareholders and a tool of housing policy -- and should be nationalized or sold. Nothing has happened. Instead, Fannie Mae and Freddie Mac, which buy home mortgages from banks and package them into bonds sold to investors, have been bailed out with $1.5 trillion in direct and indirect government aid." (Bloomberg, December 28, 2009)
Levels:
S&P 500 [1115.10] Index is up nearly 30% since July 8th 2009, which marked the second meaningful buying opportunity. In the last two months, 1100 has showcased to be a key stabilization level.
Crude [$79.36], in the past few months, has demonstrated strengths around $65 and $70. A sharp recovery, in the past two weeks, confirms a positive trend as prices near 2009 highs of $82. However, the sustainability of short-term moves will be tested.
Gold [$1085] has an inflection point that resides around $1050. A key point that should provide a better read on buyer’s enthusiasm. Importantly, a confirmation is needed to solidify early December run up.
DXY– US Dollar Index [77.95] has early phases in the recovery process. The next upside target is around 80.
US 10 Year Treasury Yields [3.83%] have rallied, twice in a three month period, above 3.20%. Once again, investors will watch the 4% as a turning point.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, December 28, 2009
Market Outlook | December 28, 2009
“The main purpose of the stock market is to make fools of as many men as possible.” - Bernard Baruch
Weekly Results:
S&P 500 1,126.48 [+2.77%], NASDAQ 2,285.69 [+4.85%], Russell 2000 634.07 [+4.94%], and Emerging Markets 40.94 [+1.11%]
For the most part, few things are expected by those reflecting and observing current conditions. Improving economic conditions will be closely watched. Continuation of this year’s rally presents a greater curiosity for investors. Finally, government policy and market stability can provide comfort for additional market participation.
When dissecting one’s global view, it’s easy to get distracted and worrisome about issues that are highlighted on front pages of newspapers. However, simplifying investment methods might be easier than predicating headline results. In simple terms, figuring out themes is a key, initial step. Most of 2009 has taught us about the power of sustainable trends, despite a period where the focus of investors turned towards short-term trading in the prior year. Secondly, isolating factors that lead to surprises can be worthwhile, since markets tend to react that way. Again, if bullishness in Gold and Emerging Markets reaches unanimous levels, perhaps one should ask few questions, especially since both areas have witnessed a decade-long upside run. Similarly, rising inflation and lower rate policy are convenient and popular ideas. At times, popularity can be a misleading forecasting tool. For the year ahead, themes of interest include food and agriculture, cheaply valued media, telecommunication, biotech, and infrastructure. The faith of commercial real estate and stabilization in banks are showing weakness. However, for those seeking gutsy plays, finding bargains in beaten up financials may present exceptional risk and reward.
Meanwhile, active shareholders will project and evaluate their desire to get involved. Gauging sentiment is very tricky, but a good read in consensus can determine the key elements of surprise. On one hand, scoreboard observers can feel compelled to step in based on 2009 returns. On the other hand, the scars of crisis from 2008 may continue the skepticism and force some to stay cautious. Nonetheless, the cycle established in March of 2008 is prevailing at marking a new cycle. The market feel is biased towards the upside, especially with S&P 500 hovering above 1100. Interestingly, volatility remains low for now, and an election year can provide for an eventful autumn.
Positive market returns are expected by most pundits. These are mostly the outperformance in emerging markets and reiteration of the Federal Reserve policy of lower rates. However, in the 12 months ahead, one must wonder about the potential of an unexpected series of events. It’s the old adage that you can expect one or two “marvelous” entry points per year to capture a rewarding outcome. Again, the timing is delicate, and this opportunity knocks in a subtle matter. For the journey ahead, performance chasing is a normal behavior. Additionally, it has paid well to bet heavy at key inflection points.
Recently, the US 10 Year Treasury Yield has risen significantly, along with the US Dollar. This begs the question of early hints for rising rates, which is assumed to be a shift in risk appetite. At the same time, rising Yields suggest cheaper bonds, which can be attractive for foreign purchasers in pending auctions. Strength in the Dollar showcases a speculative reaction of improving economic data points. In upcoming weeks, these trends will be tested.
Happy New Year!
Article Quotes:
“But, although, China's breakneck expansion looks likely to continue for some time yet, there are concerns over the country's path. Some economists compare China's position – with the authorities combining low interest rates with high government investment and rising asset prices – to Japan in the late-1980s, warning that it, too, could fall victim to a crash. Some worry about the country's demography. The one-child policy means that in the coming years its population is likely to age extremely quickly, increasing the pressure on its public finances and dampening its long-term growth prospects.” (Telegraph, December 26, 2009)
“The percentage of prime borrowers, whose loans were 60 or more days past due, doubled from the July-to-September period a year earlier. And more than half of all homeowners, whose payments had been lowered through modification plans, defaulted again. The report, which covers about 34 million loans or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation's rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people, whose monthly installments have been lowered, still are unable to keep up with their payments. Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.” (LA Times, December 22, 2009)
Levels:
S&P 500 [1126.48] is finishing the year on a strong note, while making annual highs. Buyer interest is at 1095, which showcases a bullish bias.
Crude [$78.05] is building a positive momentum at $72 and $76. After a late October peak, the commodity is showing stabilization by short-term recovery.
Gold [$1085] remains in a consolidation mode. A break below 1100 and 50-day moving average signals some technical concern as to the continuation of a multi-year run. However, $1050 can present an attractive entry point for bulls, which is worth watching in the early part of 2010.
DXY– US Dollar Index [77.81] had an explosive one-month rally that’s due for a pause. A very early indicator of a trend shift, but long-term downtrend, has yet to show meaningful reversal.
US 10 Year Treasury Yields [3.79%], like the Dollar, had a strong recovery in the past few weeks. In the fall, Yields bottomed around 3.20% twice before reaching current levels.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Weekly Results:
S&P 500 1,126.48 [+2.77%], NASDAQ 2,285.69 [+4.85%], Russell 2000 634.07 [+4.94%], and Emerging Markets 40.94 [+1.11%]
For the most part, few things are expected by those reflecting and observing current conditions. Improving economic conditions will be closely watched. Continuation of this year’s rally presents a greater curiosity for investors. Finally, government policy and market stability can provide comfort for additional market participation.
When dissecting one’s global view, it’s easy to get distracted and worrisome about issues that are highlighted on front pages of newspapers. However, simplifying investment methods might be easier than predicating headline results. In simple terms, figuring out themes is a key, initial step. Most of 2009 has taught us about the power of sustainable trends, despite a period where the focus of investors turned towards short-term trading in the prior year. Secondly, isolating factors that lead to surprises can be worthwhile, since markets tend to react that way. Again, if bullishness in Gold and Emerging Markets reaches unanimous levels, perhaps one should ask few questions, especially since both areas have witnessed a decade-long upside run. Similarly, rising inflation and lower rate policy are convenient and popular ideas. At times, popularity can be a misleading forecasting tool. For the year ahead, themes of interest include food and agriculture, cheaply valued media, telecommunication, biotech, and infrastructure. The faith of commercial real estate and stabilization in banks are showing weakness. However, for those seeking gutsy plays, finding bargains in beaten up financials may present exceptional risk and reward.
Meanwhile, active shareholders will project and evaluate their desire to get involved. Gauging sentiment is very tricky, but a good read in consensus can determine the key elements of surprise. On one hand, scoreboard observers can feel compelled to step in based on 2009 returns. On the other hand, the scars of crisis from 2008 may continue the skepticism and force some to stay cautious. Nonetheless, the cycle established in March of 2008 is prevailing at marking a new cycle. The market feel is biased towards the upside, especially with S&P 500 hovering above 1100. Interestingly, volatility remains low for now, and an election year can provide for an eventful autumn.
Positive market returns are expected by most pundits. These are mostly the outperformance in emerging markets and reiteration of the Federal Reserve policy of lower rates. However, in the 12 months ahead, one must wonder about the potential of an unexpected series of events. It’s the old adage that you can expect one or two “marvelous” entry points per year to capture a rewarding outcome. Again, the timing is delicate, and this opportunity knocks in a subtle matter. For the journey ahead, performance chasing is a normal behavior. Additionally, it has paid well to bet heavy at key inflection points.
Recently, the US 10 Year Treasury Yield has risen significantly, along with the US Dollar. This begs the question of early hints for rising rates, which is assumed to be a shift in risk appetite. At the same time, rising Yields suggest cheaper bonds, which can be attractive for foreign purchasers in pending auctions. Strength in the Dollar showcases a speculative reaction of improving economic data points. In upcoming weeks, these trends will be tested.
Happy New Year!
Article Quotes:
“But, although, China's breakneck expansion looks likely to continue for some time yet, there are concerns over the country's path. Some economists compare China's position – with the authorities combining low interest rates with high government investment and rising asset prices – to Japan in the late-1980s, warning that it, too, could fall victim to a crash. Some worry about the country's demography. The one-child policy means that in the coming years its population is likely to age extremely quickly, increasing the pressure on its public finances and dampening its long-term growth prospects.” (Telegraph, December 26, 2009)
“The percentage of prime borrowers, whose loans were 60 or more days past due, doubled from the July-to-September period a year earlier. And more than half of all homeowners, whose payments had been lowered through modification plans, defaulted again. The report, which covers about 34 million loans or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation's rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people, whose monthly installments have been lowered, still are unable to keep up with their payments. Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.” (LA Times, December 22, 2009)
Levels:
S&P 500 [1126.48] is finishing the year on a strong note, while making annual highs. Buyer interest is at 1095, which showcases a bullish bias.
Crude [$78.05] is building a positive momentum at $72 and $76. After a late October peak, the commodity is showing stabilization by short-term recovery.
Gold [$1085] remains in a consolidation mode. A break below 1100 and 50-day moving average signals some technical concern as to the continuation of a multi-year run. However, $1050 can present an attractive entry point for bulls, which is worth watching in the early part of 2010.
DXY– US Dollar Index [77.81] had an explosive one-month rally that’s due for a pause. A very early indicator of a trend shift, but long-term downtrend, has yet to show meaningful reversal.
US 10 Year Treasury Yields [3.79%], like the Dollar, had a strong recovery in the past few weeks. In the fall, Yields bottomed around 3.20% twice before reaching current levels.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, December 21, 2009
Market Outlook | December 21, 2009
“What you risk reveals what you value.” - Jeanette Winterson
For all the outcry of financial negligence of the past few years, the key risk might have shifted towards political and legal mismanagement. That’s an issue resurfacing in policymaking as more banks fail and confidence restoration remains a sensitive topic. As the year and decade near a close, a new wave of worries and rejuvenated thoughts await. The stock market peak in 2000 marked a decade long change that materialized and that was led by natural resources, regulatory restructuring, and the usual boom and bust cycles. Similar feelings were revisited again in mid 2007, which ignited the credit downturn. Interestingly, investor hunger for new themes and multi-year cycles should not be ignored. Yet, sorting out these trends is a challenge these days, given low volume and sideway markets.
That said, some are eagerly waiting on legislative results as the main trigger for idea generation. Another school of thought is to diligently seek innovative areas for potential winners within a 5 to 10 year timeframe. In some ways, both approaches provide decent odds of producing outperformers assuming a normal environment. Now, psychologically, some investors are less tolerant of higher risk bets as a result of an ongoing rollercoaster. However, markets find a way to rebound, and that lesson was revisited earlier this spring.
The past few weeks have witnessed three key points: bubble talks from emerging market leaders, legislative discussions, and improving economic conditions. These topics are most likely in the minds of money and business managers, especially for the first quarter. On a relative basis, weak credit conditions in Europe and overvalued possibilities in Asia combine to create a favorable demand for profitable, US companies. In Europe, results of high risks taken this decade are materializing. In turn, this is causing financial fallouts and policy worries, as seen in Spain and Greece. In China, asset bubbles are being discussed, but substantive facts have yet to influence market behavior. One thing is clear: the low interest rate environment continues to fuel risky assets, especially capital inflow into Asia. For instance, Asian economies witnessed an inflow of $241 billion from March to September of 2009 (Nomura Holdings).
From a global investor’s mindset, corporate bonds and stocks have offered fruitful outcomes, since March of 2009. On that note, the low rate environment has contributed to that trend, and reversal is not quite clear. In fact, recently, the Federal Reserve reaffirmed that policy stance. Therefore, these inter-connected relationships are heavily dependent on a low interest rate policy. Recently, US Dollar recovery and a steady rise in Treasury Yields are temporary hints for a changing macroeconomic environment. A sober view suggests that self-control and patience will be critical, despite urges to make interest rate speculation.
Currently Offered:
Basic fundamentals indicate further consolidation, resulting in increases in merger and acquisition opportunities, especially following a year that saw a 28% decline in a number of deals. This set up indicates that small improvements in credit conditions can spur further M&A, especially in Healthcare and Technology. Again, identifying leaders in this transitional period can offer few, actionable entry points. Stocks in large cap technology, such as IBM, Apple, and Google, present relatively healthy earnings. Similarly, Oracles strong earnings pointed out positive developments in technology, especially a rise in enterprise spending. In the same way, Cable and Telecom companies are worth a closer look for long-term participants.
Happy Holidays!
Article Quotes:
• "’Soybean prices rose to a two-week high on increasing demand by Chinese importers and U.S. processors. U.S. exporters sold 290,000 metric tons to China for delivery before Sept. 1,’ the Department of Agriculture said... Cumulative U.S. sales to all customers from Sept. 1 to Dec. 3 are up 56 percent from a year earlier... 'Demand is very strong, and exports to China are phenomenal,' said Dale Durchholz, the senior market analyst at AgriVisor LLC... 'Processors are running near 100% of capacity to produce animal feed for overseas buyers,’ he said." (Bloomberg, December 15, 2009)
• “At some point, domestic Chinese overcapacity, still worsening as utilization rates stagnate and capital spending continues, risks beginning to drive down world prices for export goods. That would lead to factory closures overseas in countries unable to compete, followed by unemployment there and social unrest - precisely the phenomena that Beijing is seeking to avoid at home. Central economists in China recognize the overcapacity dangers but even as they named various industrial sectors that will be excluded from further capital investment and construction, they do not control all the spending. That is because local and provincial governments have incentives to promote such projects without reference to national policy goals, indeed to prevent implementation of national policies unfriendly to their regions.” ( Asian Times, December 18, 2009)
Levels:
S&P 500 [1102.47] is trading within a 20-day average range. Again, a defined sideway pattern between 1090 and1115.
Crude [$73.36] commodities are seeing buying interest around $72 after several weeks of a downturn. Next key level stands near $76.
Gold [$1104] is retracing from annual highs back to below a 50-day moving average of $1107. This simply states a natural retracement, following an explosive rally. It is setting up for a short-term recovery near $1100. Investors will closely watch buyer interest around that range to determine the strength of Gold’s uptrend.
DXY– US Dollar Index [77.75] has had nearly a 5% appreciation since the start of December. A key trend reversal and bottoming process are developing. However, further confirmation is required into 2010.
US 10 Year Treasury Yields [3.53%] is struggling to hold above $3.50 for a significant period. However, the gap between 10 and 2 year yields continues to widen, suggesting a strong economic recovery.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
For all the outcry of financial negligence of the past few years, the key risk might have shifted towards political and legal mismanagement. That’s an issue resurfacing in policymaking as more banks fail and confidence restoration remains a sensitive topic. As the year and decade near a close, a new wave of worries and rejuvenated thoughts await. The stock market peak in 2000 marked a decade long change that materialized and that was led by natural resources, regulatory restructuring, and the usual boom and bust cycles. Similar feelings were revisited again in mid 2007, which ignited the credit downturn. Interestingly, investor hunger for new themes and multi-year cycles should not be ignored. Yet, sorting out these trends is a challenge these days, given low volume and sideway markets.
That said, some are eagerly waiting on legislative results as the main trigger for idea generation. Another school of thought is to diligently seek innovative areas for potential winners within a 5 to 10 year timeframe. In some ways, both approaches provide decent odds of producing outperformers assuming a normal environment. Now, psychologically, some investors are less tolerant of higher risk bets as a result of an ongoing rollercoaster. However, markets find a way to rebound, and that lesson was revisited earlier this spring.
The past few weeks have witnessed three key points: bubble talks from emerging market leaders, legislative discussions, and improving economic conditions. These topics are most likely in the minds of money and business managers, especially for the first quarter. On a relative basis, weak credit conditions in Europe and overvalued possibilities in Asia combine to create a favorable demand for profitable, US companies. In Europe, results of high risks taken this decade are materializing. In turn, this is causing financial fallouts and policy worries, as seen in Spain and Greece. In China, asset bubbles are being discussed, but substantive facts have yet to influence market behavior. One thing is clear: the low interest rate environment continues to fuel risky assets, especially capital inflow into Asia. For instance, Asian economies witnessed an inflow of $241 billion from March to September of 2009 (Nomura Holdings).
From a global investor’s mindset, corporate bonds and stocks have offered fruitful outcomes, since March of 2009. On that note, the low rate environment has contributed to that trend, and reversal is not quite clear. In fact, recently, the Federal Reserve reaffirmed that policy stance. Therefore, these inter-connected relationships are heavily dependent on a low interest rate policy. Recently, US Dollar recovery and a steady rise in Treasury Yields are temporary hints for a changing macroeconomic environment. A sober view suggests that self-control and patience will be critical, despite urges to make interest rate speculation.
Currently Offered:
Basic fundamentals indicate further consolidation, resulting in increases in merger and acquisition opportunities, especially following a year that saw a 28% decline in a number of deals. This set up indicates that small improvements in credit conditions can spur further M&A, especially in Healthcare and Technology. Again, identifying leaders in this transitional period can offer few, actionable entry points. Stocks in large cap technology, such as IBM, Apple, and Google, present relatively healthy earnings. Similarly, Oracles strong earnings pointed out positive developments in technology, especially a rise in enterprise spending. In the same way, Cable and Telecom companies are worth a closer look for long-term participants.
Happy Holidays!
Article Quotes:
• "’Soybean prices rose to a two-week high on increasing demand by Chinese importers and U.S. processors. U.S. exporters sold 290,000 metric tons to China for delivery before Sept. 1,’ the Department of Agriculture said... Cumulative U.S. sales to all customers from Sept. 1 to Dec. 3 are up 56 percent from a year earlier... 'Demand is very strong, and exports to China are phenomenal,' said Dale Durchholz, the senior market analyst at AgriVisor LLC... 'Processors are running near 100% of capacity to produce animal feed for overseas buyers,’ he said." (Bloomberg, December 15, 2009)
• “At some point, domestic Chinese overcapacity, still worsening as utilization rates stagnate and capital spending continues, risks beginning to drive down world prices for export goods. That would lead to factory closures overseas in countries unable to compete, followed by unemployment there and social unrest - precisely the phenomena that Beijing is seeking to avoid at home. Central economists in China recognize the overcapacity dangers but even as they named various industrial sectors that will be excluded from further capital investment and construction, they do not control all the spending. That is because local and provincial governments have incentives to promote such projects without reference to national policy goals, indeed to prevent implementation of national policies unfriendly to their regions.” ( Asian Times, December 18, 2009)
Levels:
S&P 500 [1102.47] is trading within a 20-day average range. Again, a defined sideway pattern between 1090 and1115.
Crude [$73.36] commodities are seeing buying interest around $72 after several weeks of a downturn. Next key level stands near $76.
Gold [$1104] is retracing from annual highs back to below a 50-day moving average of $1107. This simply states a natural retracement, following an explosive rally. It is setting up for a short-term recovery near $1100. Investors will closely watch buyer interest around that range to determine the strength of Gold’s uptrend.
DXY– US Dollar Index [77.75] has had nearly a 5% appreciation since the start of December. A key trend reversal and bottoming process are developing. However, further confirmation is required into 2010.
US 10 Year Treasury Yields [3.53%] is struggling to hold above $3.50 for a significant period. However, the gap between 10 and 2 year yields continues to widen, suggesting a strong economic recovery.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, December 14, 2009
Market Outlook | December 14, 2009
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” Ed Seykota
Glancing at the current annual performance of 22.5 % in the S&P 500 provokes mixed thoughts for 2010. This seems to be an impressive run or an inevitable recovery, following the 2008 collapse. Of course, repeating this type performance at a similar pace appears a bit ambitious. In some cases, investors are compelled to conclude that the months ahead come down to specific asset selection. From a big picture view, optimists eagerly await reentry points for investments related to commodities and emerging markets. Now, there are some concerns of early cooling for decade-old themes, which might overheat for the years ahead. However, the existing cycle suggests that this run has not yet reached its completion. The belief of this direction resides in a delicate policy implementation, early macroeconomic reactions, and the faith of participants. In any case, staying flexible on one’s market view is vital in the next few weeks. Again, managers are closely evaluating the improving economic conditions and its overall impact on interest rates. This long awaited answer paints the longer-term outlook and provides some guidance for investor behavior.
In the past few weeks, declining crude prices have triggered temporary changes to the ongoing trend. Again, much attention has focused on Gold’s outperformance. However, Crude has quietly taken a downturn, which begs a few questions. A peak in Crude prices materialized on October 21, 2009, at $82 a barrel. Interestingly, that’s around the same time that the Gold demand reached explosive levels. Assessing market developments can be dangerous when volume is dwindling and when markets are trading in a tight range. Similarly, the recovery in the US Dollar might be simply seasonal, as seen in previous years. In other words, investors have witnessed a late year currency appreciation in previous years. These developments serve as an early hint of trend reversal and will require further action from central banks. Policymakers have plenty to resolve in regards to the condition of global economies and the need for further fueling.
Sentiment readings are not providing a unanimous market read. However, financials remain a puzzle, because the fundamentals are not quite crisp. This is primarily due to increasing defaults. Recently, the credit related areas continue to underperform, while failing to stir up momentum buyers. In fact, Goldman Sachs has underperformed since the March rally, despite the perception of being a quality bank. Clearly, if risk-appetite begins to slow, then broad markets become more susceptible, especially with Financials making up 14% of the S&P 500 index. In other words, the sector behavior can weigh heavily on the performance of broad market indexes. Finally, volatility appears to be bottoming in the last 60 days. This indicates that there is a strong possibility of turbulence that may start in 2010. In addition, a significant pause is needed to reshuffle new themes and leaders.
Article Quotes:
“China issued policies to curb speculation in the nation's property market, after home prices rose at the fastest pace in more than a year. The government will impose a sales tax on homes sold within five years of their purchase, increasing the time period covered by the charge from two years, according to a statement posted on the website of the State Council, the nation's cabinet. A record $1.3 trillion of bank lending that helped revive Chinese economic growth to 8.9% in the third quarter has also fueled concerns of a bubble in the nation's property market.” (Bloomberg, December 9, 2009)
“Switzerland, Luxembourg, Ireland, and Hong Kong will all be quietly celebrating as they look forward to welcoming a second influx of bankers and financial institutions, after the first wave of tax exiles from London sent by Mr. Darling’s previous Budgets and mini-Budgets. Many British voters will, of course, be delighted about this relocation of greedy casino-bankers — almost as delighted, in fact, as the burghers of Zurich will be to receive them.” (The Times, December 11, 2009)
Levels:
S&P 500 [1106.41], in the last 15 trading days, is trading in a narrow range between 1090 and 1110. Along with low volume, this is a defined range, heading into year-end.
Crude [69.87] had a noticeable downtrend in Crude prices, as it failed to hold above $75 a barrel. This marks a 14% decline since peaking on November 10, 2009.
Gold [$1124] remains in a consolidation mode in the current near-term correction of 7.30%. Looking ahead, 1100 marks the next key support level. Upcoming behavior at current levels is worth watching as a barometer for additional buyers.
DXY– US Dollar Index [76.56] had an eye grabbing reversal building in the past few days. Although, recent years have told this story before and have had early winter recoveries. However, this sets the stage of a sharp rally, given the magnitude of oversold levels.
US 10 Year Treasury Yields [3.54%] have shown further evidence of strength, especially above 3.20%, for nearly a 3-month period. This is a psychological level that mostly explains the current pause. Now, 3.80% is a closely watched level for those taking an upward bias in rates.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Glancing at the current annual performance of 22.5 % in the S&P 500 provokes mixed thoughts for 2010. This seems to be an impressive run or an inevitable recovery, following the 2008 collapse. Of course, repeating this type performance at a similar pace appears a bit ambitious. In some cases, investors are compelled to conclude that the months ahead come down to specific asset selection. From a big picture view, optimists eagerly await reentry points for investments related to commodities and emerging markets. Now, there are some concerns of early cooling for decade-old themes, which might overheat for the years ahead. However, the existing cycle suggests that this run has not yet reached its completion. The belief of this direction resides in a delicate policy implementation, early macroeconomic reactions, and the faith of participants. In any case, staying flexible on one’s market view is vital in the next few weeks. Again, managers are closely evaluating the improving economic conditions and its overall impact on interest rates. This long awaited answer paints the longer-term outlook and provides some guidance for investor behavior.
In the past few weeks, declining crude prices have triggered temporary changes to the ongoing trend. Again, much attention has focused on Gold’s outperformance. However, Crude has quietly taken a downturn, which begs a few questions. A peak in Crude prices materialized on October 21, 2009, at $82 a barrel. Interestingly, that’s around the same time that the Gold demand reached explosive levels. Assessing market developments can be dangerous when volume is dwindling and when markets are trading in a tight range. Similarly, the recovery in the US Dollar might be simply seasonal, as seen in previous years. In other words, investors have witnessed a late year currency appreciation in previous years. These developments serve as an early hint of trend reversal and will require further action from central banks. Policymakers have plenty to resolve in regards to the condition of global economies and the need for further fueling.
Sentiment readings are not providing a unanimous market read. However, financials remain a puzzle, because the fundamentals are not quite crisp. This is primarily due to increasing defaults. Recently, the credit related areas continue to underperform, while failing to stir up momentum buyers. In fact, Goldman Sachs has underperformed since the March rally, despite the perception of being a quality bank. Clearly, if risk-appetite begins to slow, then broad markets become more susceptible, especially with Financials making up 14% of the S&P 500 index. In other words, the sector behavior can weigh heavily on the performance of broad market indexes. Finally, volatility appears to be bottoming in the last 60 days. This indicates that there is a strong possibility of turbulence that may start in 2010. In addition, a significant pause is needed to reshuffle new themes and leaders.
Article Quotes:
“China issued policies to curb speculation in the nation's property market, after home prices rose at the fastest pace in more than a year. The government will impose a sales tax on homes sold within five years of their purchase, increasing the time period covered by the charge from two years, according to a statement posted on the website of the State Council, the nation's cabinet. A record $1.3 trillion of bank lending that helped revive Chinese economic growth to 8.9% in the third quarter has also fueled concerns of a bubble in the nation's property market.” (Bloomberg, December 9, 2009)
“Switzerland, Luxembourg, Ireland, and Hong Kong will all be quietly celebrating as they look forward to welcoming a second influx of bankers and financial institutions, after the first wave of tax exiles from London sent by Mr. Darling’s previous Budgets and mini-Budgets. Many British voters will, of course, be delighted about this relocation of greedy casino-bankers — almost as delighted, in fact, as the burghers of Zurich will be to receive them.” (The Times, December 11, 2009)
Levels:
S&P 500 [1106.41], in the last 15 trading days, is trading in a narrow range between 1090 and 1110. Along with low volume, this is a defined range, heading into year-end.
Crude [69.87] had a noticeable downtrend in Crude prices, as it failed to hold above $75 a barrel. This marks a 14% decline since peaking on November 10, 2009.
Gold [$1124] remains in a consolidation mode in the current near-term correction of 7.30%. Looking ahead, 1100 marks the next key support level. Upcoming behavior at current levels is worth watching as a barometer for additional buyers.
DXY– US Dollar Index [76.56] had an eye grabbing reversal building in the past few days. Although, recent years have told this story before and have had early winter recoveries. However, this sets the stage of a sharp rally, given the magnitude of oversold levels.
US 10 Year Treasury Yields [3.54%] have shown further evidence of strength, especially above 3.20%, for nearly a 3-month period. This is a psychological level that mostly explains the current pause. Now, 3.80% is a closely watched level for those taking an upward bias in rates.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, December 07, 2009
Market Thoughts | December 7, 2009
“It is the province of knowledge to speak, and it is the privilege of wisdom to listen.” Oliver Wendell Holmes (1809 - 1894)
The Current Landscape:
To argue against an existing trend can be a dangerous game. However, there are moments that require investors to delicately pick their spots in making directional and theme based bets. Importantly, it helps to take note of subtle hints.
With few trading days left this year, satisfied market participants appear to gladly throw in the towel. Temporarily, financial markets are providing some clues of pending unrest. It’s not surprising for those that have awaited a much needed breather. At the same time, remaining skeptical or being contrarian might not be the best way to approach portfolio management. Therefore, we look to macroeconomic indicators for a better market feel. As a start, Friday’s action featured various headline materials, highlighted by improving economic data. In addition, decline in Gold, rise in US Dollar, and spike in long-term rates catch the attention of analysts that are seeking evidence for trend reversal. So far this year, claiming a trend shift sounds like a broken record, and some are tuning out this possibility. Nevertheless, inflection points occur slowly after series of events and false alarms.
Golden Moments:
Simply put, Gold is in a well defined uptrend. This is visible from a cycle view, and this is supported by multi-year, fundamental strength. Yet recently, escalated Gold price levels were hitting the radar of close observers as the odds for a downturn increased. As witnessed last Friday, the commodity desperately required a rude awakening to calm buyer demand frenzy. As market behaviors teach us, it takes a while for a story to convince additional global buyers. This fall, arguments for higher Gold prices became more convincing and slightly less doubted. The past few days, Gold buyers were seeking a hedge or at least taking profits, which seemed feasible in the past week. To sharply rise from $1000 to $1212 in less than 50 days served as an impressive move that required caution.
For professionals, it seemed only prudent to scale back, especially in the wake of Dubai’s overdue glitch. In other words, Gold price behavior reflects and coincides with optimism in emerging markets. Of course, for investors, it was tough to neglect the strength of the the commodity after a break above $1000 that enabled buyers to declare yet another milestone. Perhaps, every run needs to surpass a psychological level to define a victory. For some commodity optimists, it was a rewarding call that produced outperforming returns and a chance to graciously exit or temporarily hedge.
A Point of View:
With the S&P up 22% year to date, it can be interrupted as a good year. Another view points out that the S&P decade performance is disappointing. Maybe, this explains why some investors lost their desire to invest solely in stocks, following the technology bubble of 2000. Looking back, we can recognize a decade that witnessed various changes in market dynamics. Clearly, increasing risk appetite has favored commodities, emerging markets, and fixed income. Keeping this in mind, the magnitude of the next correction will be watched attentively for long and short-term implications.
Article Quotes:
• “In the most recent April-to-November period, Fed credit outstanding grew by 6.8%. This is well above the median for the 1989 through 2009 time span (with 1999 and 2008 set at zero) of 2.5%. Nevertheless, this relatively high rate of growth in the Fed's balance sheet in the 2009 interval is hardly unprecedented. In fact, in four prior years - 1990, 1992, 1993 and 2001 - the April-to-November rate of growth in the Fed's balance sheet exceeded the 2009 growth of 6.8%. And in 1991, the Fed's balance sheet grew by 6.6%, close to the 2009 growth rate.” (Paul Kasriel – December 3, 2009)
• "Initial public offerings in emerging nations are returning about 15 times more than IPOs in developed countries even as companies from China to Brazil flood the market with more shares than ever. Listings... helped raise $39 billion in emerging markets during the three months ending... That outstrips the amount sold in IPOs from 23 industrialized nations by $21.3 billion, the biggest gap since at least 2000." (Bloomberg – November 30, 2009)
Levels:
S&P 500 [1105] Multi-week trading range forms between 1090-1110. Technicals suggest minor pullbacks near 1077, which are the 50 day moving average.
Crude [$75.47] Attempting to stay above $75 after failing to hold around $80. At this stage, further correction ahead follows a strong recovery since May 2009.
Gold [$1190] Early peak at $1212, following a sharp rally. Next, key levels stand at $1150, and it’s nearly 9% removed from its 50 day moving average.
DXY– US Dollar Index [75.81] Showcasing signals of a bottom throughout November. Sharp rally from annual lows suggest early stability and a pause from ongoing downtrend, setting up for an explosive move, given the extremely oversold ranges.
US 10 Year Treasury Yields [3.47%] Once again, for the fourth time this year, rates have held above 3.20%. In this recent move, yields briefly touched 3.15% and snapped back, suggesting a strong market demand.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
The Current Landscape:
To argue against an existing trend can be a dangerous game. However, there are moments that require investors to delicately pick their spots in making directional and theme based bets. Importantly, it helps to take note of subtle hints.
With few trading days left this year, satisfied market participants appear to gladly throw in the towel. Temporarily, financial markets are providing some clues of pending unrest. It’s not surprising for those that have awaited a much needed breather. At the same time, remaining skeptical or being contrarian might not be the best way to approach portfolio management. Therefore, we look to macroeconomic indicators for a better market feel. As a start, Friday’s action featured various headline materials, highlighted by improving economic data. In addition, decline in Gold, rise in US Dollar, and spike in long-term rates catch the attention of analysts that are seeking evidence for trend reversal. So far this year, claiming a trend shift sounds like a broken record, and some are tuning out this possibility. Nevertheless, inflection points occur slowly after series of events and false alarms.
Golden Moments:
Simply put, Gold is in a well defined uptrend. This is visible from a cycle view, and this is supported by multi-year, fundamental strength. Yet recently, escalated Gold price levels were hitting the radar of close observers as the odds for a downturn increased. As witnessed last Friday, the commodity desperately required a rude awakening to calm buyer demand frenzy. As market behaviors teach us, it takes a while for a story to convince additional global buyers. This fall, arguments for higher Gold prices became more convincing and slightly less doubted. The past few days, Gold buyers were seeking a hedge or at least taking profits, which seemed feasible in the past week. To sharply rise from $1000 to $1212 in less than 50 days served as an impressive move that required caution.
For professionals, it seemed only prudent to scale back, especially in the wake of Dubai’s overdue glitch. In other words, Gold price behavior reflects and coincides with optimism in emerging markets. Of course, for investors, it was tough to neglect the strength of the the commodity after a break above $1000 that enabled buyers to declare yet another milestone. Perhaps, every run needs to surpass a psychological level to define a victory. For some commodity optimists, it was a rewarding call that produced outperforming returns and a chance to graciously exit or temporarily hedge.
A Point of View:
With the S&P up 22% year to date, it can be interrupted as a good year. Another view points out that the S&P decade performance is disappointing. Maybe, this explains why some investors lost their desire to invest solely in stocks, following the technology bubble of 2000. Looking back, we can recognize a decade that witnessed various changes in market dynamics. Clearly, increasing risk appetite has favored commodities, emerging markets, and fixed income. Keeping this in mind, the magnitude of the next correction will be watched attentively for long and short-term implications.
Article Quotes:
• “In the most recent April-to-November period, Fed credit outstanding grew by 6.8%. This is well above the median for the 1989 through 2009 time span (with 1999 and 2008 set at zero) of 2.5%. Nevertheless, this relatively high rate of growth in the Fed's balance sheet in the 2009 interval is hardly unprecedented. In fact, in four prior years - 1990, 1992, 1993 and 2001 - the April-to-November rate of growth in the Fed's balance sheet exceeded the 2009 growth of 6.8%. And in 1991, the Fed's balance sheet grew by 6.6%, close to the 2009 growth rate.” (Paul Kasriel – December 3, 2009)
• "Initial public offerings in emerging nations are returning about 15 times more than IPOs in developed countries even as companies from China to Brazil flood the market with more shares than ever. Listings... helped raise $39 billion in emerging markets during the three months ending... That outstrips the amount sold in IPOs from 23 industrialized nations by $21.3 billion, the biggest gap since at least 2000." (Bloomberg – November 30, 2009)
Levels:
S&P 500 [1105] Multi-week trading range forms between 1090-1110. Technicals suggest minor pullbacks near 1077, which are the 50 day moving average.
Crude [$75.47] Attempting to stay above $75 after failing to hold around $80. At this stage, further correction ahead follows a strong recovery since May 2009.
Gold [$1190] Early peak at $1212, following a sharp rally. Next, key levels stand at $1150, and it’s nearly 9% removed from its 50 day moving average.
DXY– US Dollar Index [75.81] Showcasing signals of a bottom throughout November. Sharp rally from annual lows suggest early stability and a pause from ongoing downtrend, setting up for an explosive move, given the extremely oversold ranges.
US 10 Year Treasury Yields [3.47%] Once again, for the fourth time this year, rates have held above 3.20%. In this recent move, yields briefly touched 3.15% and snapped back, suggesting a strong market demand.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
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